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
  • Markets buffeted in both directions after midterms: U.S. stocks moved higher in a brief relief rally following midterm elections that produced a divided Congress but brought a temporary end to political uncertainty. The Standard & Poor’s 500 surged 2.1 percent the day after the election before retrenching and reaching mid-month with a 0.8 percent gain. International developed stocks were up 0.1 percent for the first half of the month, emerging-market stocks surged 4.2 percent and bonds were fractionally higher.
  • Oil tumbles: U.S. crude oil prices fell for a record 12 straight days, extending their decline to 27 percent since reaching four-year highs October 3. The slump reflects forecasts that supply will now outpace the expansion in world demand in 2019, leading to a growing glut of crude on the market. Lower oil prices have a mixed economic impact: beneficial to consumers and energy-consuming companies but harmful to the U.S. oil industry, which is a big part of the economy.
  • Brexit deal in limbo: The fates of both Brexit and British Prime Minister Theresa May’s government were in question amid strong opposition to the 585-page draft agreement May crafted with the European Union on terms of Britain’s EU departure. Many pro-Brexit politicians, including two Cabinet members who resigned this week, fear the divorce deal will leave Britain still dependent on the EU and unable to forge an independent trade policy. May faces a possible vote of no confidence next week and long odds to gain parliamentary approval of the deal even if she survives the vote.
Chart of Interest

market monitor

 Year-end resilience: The S&P 500 is up 3.4 percent from the late October low, in keeping so far with a trend that has seen solid gains in every midterm election end-of-year period since 1946.

 Sources: Morningstar, Altair Advisers
Key Takeaways
  • The volatility that has characterized the markets this autumn is normal, especially in a midterm election year. The Standard & Poor’s 500 Index has seen 10 percent pullbacks in 58 of the last 91 years dating to 1928, including 2018.
  • The U.S. economy is on good footing despite investors’ concerns over the trade war with China and the Federal Reserve raising rates. Corporate earnings are expected to rise at a slower pace next year after spectacular growth in 2018. But they are still forecast to rise on an absolute basis, which can help keep this business cycle intact.
  • We do not expect the economy or markets to suffer if, as expected, the Federal Reserve raises the federal funds rate at its December meeting for the fourth time this year and the ninth time since it began this rate-hike cycle in December 2015. We would, however, be concerned if the Fed raises aggressively in 2019, ignoring any serious signs of a softening economy that may emerge.
  • International stocks remain pressured by trade issues and by economic challenges in Europe, including Italy’s ballooning debt, Germany’s third-quarter economic contraction and ongoing uncertainty over Brexit. The German economy is forecast to bounce back quickly, however, and we see potential for international stocks to rise after a disappointing 2018.
  • Oil prices have fallen into a bear market but other goods in the investment basket of commodities have held up. Natural gas has posted large double-digit gains during oil’s slide and major agricultural items such as soybeans and cattle also have gained. The decline in crude prices strengthens our view that inflation will remain contained and may even soften, which should help keep interest rates from spiking.

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.