Market Update - November 26, 2018Submitted by Jodi Vleck , Beta Wealth Group on November 26th, 2018
During a holiday-shortened Thanksgiving week, U.S. equities suffered one of their worst weeks of the year with the S&P 500 and Nasdaq ending down nearly 4%, and the Dow Jones industrial average falling 4.5% due to concerns about a slowing economic environment. From a sector standpoint, defensive sectors such as Utilities, Consumer Staples and healthcare held up best, while technology and energy sectors suffered the most, each posting losses over 5%. On the economic front, growth as evidenced by the Index of Leading Economic Indicators was offset by mixed housing data and weaker durable goods orders.
While comments from Vice President Pence regarding China’s trade policies were viewed negatively by the market, concerns about slowing global growth appear to be another key factor, with the upcoming G20 meeting in late November likely be a key focus, as the U.S. and China will have another chance to formally discuss trade and tariffs. Also contributing to weakness is the technology sector, which has been impacted by negative sentiment on industry bellwether Apple around potential slowing of iPhone/iPad sales and Facebook where higher governmental regulation seems to be the likely norm going forward. Declining oil prices have also been a source of concern, related to fears of slowing global growth; however, this has the potential to be both a boon and a curse, since lower energy prices harm energy sector earnings but aid consumers and businesses that generally benefit from lower input costs.
Despite strength in the dollar, foreign stocks fared better than domestic equities, with Japan and the U.K. outperforming Europe and Emerging Markets. As has been the case in recent weeks, attention is being paid to fears over slowing global growth, U.S./China trade tensions and viability of the Brexit package, which needs parliamentary approval in the UK.
U.S. bonds were flat overall as treasuries benefited from increased flows, while corporate bonds lost ground as spreads widened, particularly in high yield. Foreign bonds fared poorly, as a stronger U.S. dollar pushed returns into negative territory, although emerging market local bonds ended the week with positive returns.
Real Estate equities suffered minimal losses despite broad weakness in equities, and REITs in Asia outperformed with positive returns. Commodities lost significant ground as all broad sectors ended in negative territory, and the dollar strengthened. Although natural gas gained due to cold weather and favorable supply dynamics, the energy group overall was led downward by the 11% drop in the price of crude oil which ended the week at just over $50/barrel.