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Market Update for the Month Ending November 30, 2019

A November to be thankful for - November was another positive month for markets, with the three major U.S. indices setting all-time highs. The S&P 500 gained 3.63 percent, and the Dow Jones Industrial Average rose by 4.11 percent. The Nasdaq Composite led the way with a 4.64 percent gain.

These positive results were supported by improving fundamentals. According to Bloomberg Intelligence, with 95 percent of companies reporting, the blended third-quarter earnings for the S&P 500 declined by 1.3 percent year-over-year. This is far better than initial estimates of a 3.6 percent decline. The positive results were widespread, with 9 of 11 sectors beating their initial estimates. Technicals were also supportive for markets, with all three indices spending the month above their respective 200-day moving averages.

Results were mixed internationally. The MSCI EAFE Index gained 1.13 percent during the month, but the MSCI Emerging Markets Index declined by 0.13 percent. Both indices were well supported technically, spending the month above their respective trendlines.

Fixed income had a more challenging month, with rising rates hindering returns. The 10-year Treasury note ended October at 1.69 percent and rose as high as 1.94 percent in November before finishing at 1.78 percent. The Bloomberg Barclays U.S. Aggregate Bond Index lost 0.05 percent. High-yield bonds fared better, with the Bloomberg Barclays U.S. Corporate High Yield Index gaining 0.33 percent.

 

Solid month for economic updates

November’s economic updates painted a picture of steady economic growth. The month started with the October employment report, which showed 128,000 new jobs against expectations for 85,000. Despite recent positive results, however, the pace of new job creation sits well below levels seen in 2018. This slowdown in job growth was one of the primary factors in the Federal Reserve’s (Fed’s) decision to cut interest rates at its October meeting.

Housing has been a bright spot for the economy recently, with declining mortgage rates drawing more potential buyers into the market. Existing home sales increased by 1.9 percent in October, marking the fourth straight month of year-over-year growth. New home sales were just as impressive, reaching a post-recession high over the past two months (see Figure 1).

 

Figure 1. New Home Sales, November 2007–Present

 Family Houses Sold Graph

Building on the strength in housing sales, personal spending rose by 0.3 percent in October, up from 0.2 percent growth in September. October’s retail sales also grew by 0.3 percent, rebounding from a disappointing decline in September.

The second estimate of third-quarter gross domestic product growth was released in November. The economy grew at an annualized rate of 2.1 percent during the quarter, up from the initial estimate of 1.9 percent. This result beats the 2 percent growth rate we saw in the second quarter, with personal consumption remaining the major contributor overall.

 

Confidence improves in October

The positive results from the month were supported by rising confidence levels. The University of Michigan consumer sentiment survey improved for the third straight month. Consumer confidence is driven largely by the job market and equity performance, so this increase is not surprising given recent employment and equity market results.

Business confidence also improved. The Institute for Supply Management composite index, which measures manufacturer and nonmanufacturer confidence, increased to 54 in October after hitting a three-year low of 52.1 in September. This rebound helped calm fears of a potential decline in business investment.

 

Political risks remain real yet muted

Despite the positive results we saw for markets and economic updates last month, political risks have the potential to affect markets at any time. Domestically, the continuing impeachment proceedings showcase the potential for political instability. In the U.K., the upcoming general elections will likely have a dramatic effect on Brexit negotiations ahead of the January 31 trade deal deadline with the European Union. No matter the outcome, this election will serve as a potential source of uncertainty.

China continues to deal with riots in Hong Kong. Violence and rhetoric intensified following local elections that saw pro-democracy candidates outperforming establishment pro-China candidates. The question of Hong Kong’s autonomy will likely play a role in the ongoing U.S.-China trade negotiations.

 

Economy remains poised for growth

All things considered, economic fundamentals remain positive, and current growth levels suggest we’re on track for a slow and steady year of growth. The combination of improving confidence and continued support from the Fed helped drive consumer spending, and the improvements we saw in business confidence could indicate a rebound in business spending is coming.

Very real risks to markets remain, however. The ongoing uncertainty from political developments, both at home and abroad, could lead to volatility. But despite any short-term turmoil we may encounter, a well-diversified portfolio matched to your risk tolerance remains the best way to meet your financial goals.

 

All information according to Bloomberg, unless stated otherwise.

 

Disclosure: Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. It excludes closed markets and those shares in otherwise free markets that are not purchasable by foreigners. The Bloomberg Barclays Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Bloomberg Barclays government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities. The Bloomberg Barclays U.S. Corporate High Yield Index covers the USD-denominated, non-investment-grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.

The Financial Consultants of Manning Wealth Management, Inc. are registered representatives and investment adviser representatives with/and offers securities and advisory services through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. They are also an Investment Adviser Representatives of Manning Wealth Management. Financial planning services offered by Manning Wealth Management are separate and unrelated to Commonwealth. Fixed insurance products and services offered through CES Insurance Agency or Manning Wealth Management.

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Authored by Brad McMillan, CFA®, CAIA, MAI, managing principal, chief investment officer, and Sam Millette, senior investment research analyst, at Commonwealth Financial Network®.

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