Market Monitor: November End of Month Update
Twice a month, we send clients this overview of the markets and roundup of key economic news stories. Similar to Altair Insight, it enables us to share our big-picture views while also highlighting select market returns and developments that we feel are important.
Headlines and Highlights
- U.S., China agree to cease-fire in trade war: U.S. President Donald Trump and Chinese President Xi Jinping took steps toward a détente in their trade standoff by agreeing to halt the imposition of new tariffs for 90 days and intensify talks toward a settlement. The cease-fire reached at the G20 summit in Argentina leaves the existing U.S. tariffs on Chinese imports in place for now. It delays the planned increase in the tariff rate on $200 billion of those goods, from 10 percent to 25 percent, that was scheduled for January while also averting Trump’s threat of further tariffs.
- Powell’s comments buoy markets: Federal Reserve Chairman Jerome Powell said interest rates are “just below” a range of estimates of the so-called neutral level, suggesting a less aggressive path of monetary tightening than in October when he said rates were ”a long way from neutral.” Markets embraced the perceived shift in sentiment, responding with the biggest surge in U.S. stocks since March and a pronounced move lower in rates.
- Housing market cools: The U.S. housing sector slowed further, with home prices, sales and homebuilding all logging their weakest data in at least two years. The housing market has softened as interest rates have risen. Fed chief Powell said he and his fellow policy makers are watching the sector closely, but he noted that it is a smaller component of the economy than it once was and therefore has less impact on monetary decision-making.
Selected Market Returns
Sources: Morningstar, Altair Advisers
- The temporary deal reached by Presidents Trump and Xi in Buenos Aires is a sign of progress and provides welcome encouragement for investors during a volatile autumn. While we continue to believe the tariffs battle will be resolved before becoming a long-term problem, this 90-day diplomatic cease-fire does not remove the trade cloud hanging over the markets.
- The Federal Reserve is widely expected to raise interest rates again at its December 18-19 meeting, an increase we do not expect to disrupt the markets. Chairman Powell’s statement that rates are just below the neutral rate bolstered our confidence that the Fed will be responsive to incoming economic data – not jeopardizing the current economic expansion by over-tightening.
- The U.S. economy is on a pace to expand at a reduced but still healthy rate of approximately 2.5 percent in the fourth quarter, according to the latest estimates from the Federal Reserve Banks of Atlanta and New York. Third-quarter corporate profits rose by 26 percent over a year earlier, helped by strong GDP growth, and are forecast to remain positive in the year ahead, albeit growing slower than this year.
- Most asset classes posted modest gains in November after a challenging October, still leaving many with disappointing year-to-date returns. The biggest loser was commodities, with the iPath Bloomberg Commodity Total Return ETN declining 0.9 percent as U.S. oil prices fell below $50 a barrel for the first time in 14 months. The pullback in energy prices provided further evidence that inflation remains in check.
- International stocks remain pressured by the trade war, the strong U.S. dollar, Italy’s debt-laden budget and by ongoing uncertainty over Brexit. The iShares MSCI EAFE ETF edged up 0.5 percent in November and is down 8.9 percent year-to-date. GDP growth in Europe is expected to rebound in the fourth quarter, although it is likely to be lower in 2019 than this year.
The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice