ECONOMY: U.S. economic data has softened in the recent months and growth is expected to moderate in 2019. The Federal Open Market Committee left short term interest rates unchanged at their November meeting, while striking a dovish tone by stating interest rates are “just below” neutral. The impact of higher interest rates and increased borrowing cost has already impacted several industries, including auto and real estate. However, the largest headwind to growth remains global trade conflict at a time where the US trade deficit reached a 10-year high.
EQUITY: November provided reprieve for global stocks as equity markets bounced back after a tough October. The MSCI Emerging Markets Index led the way with returns of 4.12% as China equity markets rebounded from the lows. US equities also had positive returns with the S&P 1500 Index returning 2.06%. Corporate earnings in the US remained robust as third quarter S&P 500 aggregate earnings increased over 25%, the highest growth rate since 2010. Volatility levels remained elevated and closer to long-term averages as investors adjust to changing market dynamics, constant news flow and position portfolios for 2019.
FIXED INCOME: US bonds as measured by the Barclays US Aggregate Bond Index advanced .06% in November. The shift in Fed speak sparked a rally in government bonds and the 10-Year US Treasury rate declined from 3.24% to 3.01% during the month. In addition, the Treasury yield curve showed its first signs of inversion as the 2-year and 3-year yields moved higher than the 5-year yield. While a December rate hike remains probable, market participants have lowered expectations of subsequent hikes. Credit spreads remained under pressure as a sizable drop in oil prices weighed on the energy sector.