Down the Home Stretch for 2019
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 12/06/19. Rates and Economic Calendar Data from Bloomberg as of 12/06/19. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
Global equity markets finished higher last week. In the U.S., the S&P 500 Index increased to a level of 3,146, representing a gain of 0.21%, while the Russell Midcap Index was essentially flat, returning -0.01%. The Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, outperformed its larger cap counterparts gaining 0.59% over the week. On the international equities front, developed and emerging markets outpaced the U.S., increasing by 0.38% and 0.88% respectively. Finally, the 10-year U.S. Treasury yield continued to rise and finished the week at 1.84%.
Equity market volatility picked back up to start the final month of 2019 when compared to a relatively muted November, as evidenced by movements in the CBOE Volatility Index (VIX). As we’ve seen many times throughout the year, markets reacted to U.S./China trade news, only to reverse course later on by contradictory or contrary messaging. With no substantially new information on trade or tariffs, investors were left with some economic activity and data updates to dissect. On Monday, positive news out of China and the Eurozone increased investor confidence. In China, a gauge of factory activity came in at its best level in three years while manufacturing activity in the Eurozone improved last month. Unfortunately, releases out of the U.S. put a damper on the positive sentiment. The Institute for Supply Management reported U.S. manufacturing activity declined at a faster-than-expected pace in November, marking the fourth straight month of contraction. Expectations were for an uptick in activity.
It wasn’t until Friday that stocks rebounded and were propelled higher by a robust November jobs report. Highlighting the slate of positive news was the Labor Department reporting 266,000 jobs were added in November, crushing the consensus forecast of 180,000 new jobs. In addition, the prior month’s job number was upwardly revised to 156,000 from 128,000 and the unemployment rate unexpectedly trickled down to 3.5% – a 50 year low!
Jobs, wages, and consumer spending are all interconnected and are primarily what has been driving further expansion in the later innings of the current economic cycle. The strong jobs report ties in nicely with some early holiday shopping season data, further bolstering the case for continued confidence in the U.S. economy as a whole. According to Adobe Analytics, Black Friday online sales reached $7.4 billion, the second largest online shopping day ever, only behind last year’s Cyber Monday. In addition, on Cyber Monday 2019, online shoppers spent $9.4 billion, up 19.7% from a year ago. Despite concerns surrounding declining global economic activity and trade uncertainties, consumers continued to show confidence and have not let these issues affect their holiday purchasing thus far.
With that said, it’s never too early to revisit portfolio allocations to ensure you’re properly positioned heading into the New Year. As always, we encourage investors to work with experienced financial professionals to help manage their portfolios through various market cycles within a well-diversified framework that is consistent with their objectives, time-frame and tolerance for risk.
Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging markets.
There are special risks associated with an investment in real estate, including credit risk, interest rate fluctuations and the impact of varied economic conditions. Distributions from REIT investments are taxed at the owner’s tax bracket.
The prices of small company and mid cap stocks are generally more volatile than large company stocks. They often involve higher risks because smaller companies may lack the management expertise, financial resources, product diversification and competitive strengths to endure adverse economic conditions.
Investing in commodities is not suitable for all investors. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity.
Products that invest in commodities may employ more complex strategies which may expose investors to additional risks.
Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original cost upon redemption or maturity. Bond Prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.
MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.
MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.
Russell 3000: The Russell 3000 measures the performance of the 3000 largest US companies based on total market capitalization and represents about 98% of the investible US Equity market.
ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.
ML Muni Master [Merill Lynch US Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.
Investors cannot directly purchase any index.
LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.
The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.
The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.
DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITs that primarily own and operate income-producing real estate.