Market Update - November 11, 2019Submitted by Jodi Vleck , Beta Wealth Group on November 11th, 2019
For the week ended November 8th, U.S. stocks generally fared well due in part to optimism around roll back of tariffs as part of the proposed ‘Phase 1’ trade deal with China, as quoted by an administration official, with most major indices moving into record territory yet again. While the markets seem to have priced in a portion of the Phase 1 trade deal being signed prior to December, it appears quite probable that signing of a final trade deal could last well into the 2020 election year. On the economic front, strong ISM non-manufacturing data more than offset mixed data on the labor front.
By sector, while the performance gap between the best performing and the worst performing sectors has increasingly diverged based on Q3 earnings results thus far, most sectors gained ground last week led by financials, industrials and energy. Notable laggards were the Utilities sector, which fell nearly 4% on the back of a shift in investor sentiment to risk-on mode, and the real estate sector which lagged due to investor outflows away from higher-yielding defensive assets.
Foreign developed market equities fared similarly to U.S. equities in local currency terms, while lagging a bit when adjusted for the impact of a stronger dollar. European firms have fared better-than-expected this earnings season on the back of lower valuations in a world starved for cheaper assets, with >50% of firms exceeding earnings expectations. Emerging markets fared better, with market gains in China and other Asian nations being fueled by stronger-than-expected Chinese economic data, while Brazilian markets struggled due to weakness in the real.
U.S. bonds pulled back significantly with most broader bond indices falling 1% or greater. Higher bond yields came alongside hopes of a trade deal and subsequently likely positive impact on economic growth. The exception was bank loans which benefited from the rise in rates, and ended up as the only segment with significant gains for the week. Foreign bonds suffered a similar fate, with negative returns exacerbated in developed markets by the impact of a stronger dollar, which pushed most bond categories down 2%.
Commodities were again mixed, with a stronger dollar serving as a headwind and the energy sector fueled by continued increases in natural gas due to anticipated colder weather in coming weeks and a 2% spike in crude prices. A combination of factors including potential supply growth across many countries globally and the risks of a global demand slump could put a damper on crude price prospects in 2020.