Economic Update 11-12-2018

• Economic news for the week included a FOMC meeting where interest rates were held steady, manufacturing ISM declined but remained strongly positive, and jobless claims continued to show labor market strength.
• U.S. equity markets gained some ground last week, following the conclusion of the mid-term elections, while foreign stocks were mixed to lower on net.  Bonds were positive as interest rates declined a bit following the Fed’s meeting.  Commodities fell a few percent driven primarily by lows in crude oil, which is now in a bear market.

U.S. stocks experienced a decent week, with a positive response to the mid-term election results that seemed to meet market consensus expectations.  However, hopes that the Fed may temper the pace of recent rate increases due to market weakness this fall were dashed, which soured sentiment a bit.  From a sector standpoint, more defensive sectors led the way, with health care, staples and utilities providing returns well over +3% each.  Healthcare was likely helped by the prospect for continued subsidies under the ACA following a favorable House election.  Lagging the pack most significantly was technology, and small caps overall experienced flattish results for the week.

Foreign stocks in developed markets also experienced a flattish response on net, with slight gains in the U.K. and Japan being offset by declines in Europe, as economic results have been underperforming expectations and concern over Italy’s budget situation persists.  Emerging markets fared especially poorly, and lost ground on the week, led by especially weak results in Brazil as commodity prices weakened, and China, despite stronger-than-expected export numbers.

U.S. bonds fared well, as interest rates ticked downward.  Investment-grade corporates were among the best-performing groups, outpacing both treasuries and high yield.  The value of the dollar ticked up slightly, which pressured developed market government bonds as well as emerging market local debt.

Real estate in the U.S. was among the best performers of the week, while European and Asian REITs earned positive but weaker returns.  Healthcare REITs led with sharply higher returns, in keeping with the health care sector broadly, with hopes of the ACA reimbursement system continuing in its current format.

Commodities fell back with a stronger dollar, and continued negative impacts from the metals sectors and energy, despite a double-digit gain from natural gas prices.  Crude oil fell by nearly -5% on the week to close just above $60/barrel.  Oil has officially moved into bear market territory, with prices down -20% overall from peaks in early October.  To the contrary of concerns just a few weeks ago, fears of weaker global economic growth, that equate to lower demand have been coupled with rising supplies as Iranian sanctions appear to have a smaller effect on overall markets as first thought.

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.                                                                              

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.