Market Monitor: November Mid-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
  • Stocks post new highs: Major U.S. stock indexes rose to record highs at November’s midpoint mark and international stocks also advanced on optimism that a partial trade war resolution was near and on declining concerns about the global economy. The Standard & Poor’s 500 Index added 3% in the first half of the month and was up close to 27% year-to-date. Large caps, small caps, international developed and emerging-markets stocks all were up about 5% in the fourth quarter as recession fears subsided.
  • Trade deal outlook in flux: Prospects for a Phase 1 mini-deal on trade remained uncertain amid conflicting signals from the United States and China. China said earlier this month that the two sides had settled on phasing out tariffs but U.S. President Donald Trump denied agreeing to a rollback. High-level negotiations continue.
  • Bond yields extend their recovery: An improved economic outlook has pushed U.S. government bond yields off the near-historic lows they reached in late summer. The yield on the benchmark 10-year U.S. Treasury note climbed back above 1.8% after sinking under 1.5% in early September and briefly falling below the 2-year yield, a so-called inversion. That trend has reversed due to economic reports that were better than expected along with the Federal Reserve’s latest cut in interest rates.
Chart of Interest

market monitor

Reversed Course:  The spread between the 10-year and 2-year government bond yields has widened since un-inverting in September, reflecting improved investor sentiment.

Sources: St. Louis Federal Reserve, Altair Advisers
Key Takeaways
  • The U.S. economy continues to slow, with fourth-quarter GDP growth forecast at a scant 0.4% annual rate and full-year growth at just 1.9% based on a blend of estimates by the Atlanta and New York Federal Reserve Banks. The all-important category of consumer spending remains on solid footing heading into the holiday season, however, with October retail sales rising a modest 0.3% over a year earlier.
  • Third-quarter corporate profits have been better than expected but still not nearly as strong overall as the same period last year, when U.S. companies were in the midst of a year of blockbuster earnings. With 92% of companies having reported, earnings were down 2.3% over the third quarter of 2018, according to FactSet, marking a third straight quarter of year-over-year earnings declines.
  • The S&P 500 is on track for its largest calendar-year gain since 2013 (32.3%) and one of its strongest performances of the past three decades, bouncing back from last year’s decline of 4.6%. The index has logged 10 record closing highs in the past three weeks and 23 in all of 2019. Despite this year’s significant advance, the S&P 500’s gain since the beginning of 2018 averages out to just 10.6% per year – a pace close to the market’s historical norm.
  • The dollar has fallen 2% against a basket of other major currencies since the end of September, signifying growing hopes for a preliminary trade deal between the United States and China. A return to higher world GDP growth next year – which the IMF expects, forecasting 3.4% in 2020 compared with 3.0% in 2019 – would encourage a shift away from the dollar to other currencies and help investments in emerging markets and other non-U.S. stocks.
  • Despite a recent pullback in bond prices, year-to-date returns for both taxable and tax-exempt bonds remain very solid. The Vanguard Total Bond Index, a proxy for taxable investment-grade bonds, had a year-to-date gain of 8.4% as of mid-November even after a 0.5% decline this month when yields rose. Altair’s benchmark for tax-exempt municipal bonds has a 5.1% 2019 gain after edging back 0.2% so far this month.

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