Commentaries

PMC Weekly Review - December 4, 2015

A Macro View – November Monthly Recap

Domestic equity markets turned in mixed performance during November, digesting large gains posted the prior month. It was an environment in which seasonal tailwinds butted heads with perceived Federal Reserve resolve to finally begin to raise interest rates. While stocks generally enjoy their best performance during the last quarter of the year and into January, many analysts believe that this year any such gains may have been front-loaded into October. The earnings season ended on a positive note, at least from a surprise perspective, with the S&P 500 in aggregate outperforming analysts estimates by about 4.6%. However, aggregate earnings growth was negative for the quarter. Domestic economic data was on balance positive, with the latest estimate of third quarter real gross domestic product (GDP) coming in at +2.1%, in line with expectations. In addition, manufacturing services stabilized after several months of decline.

Within this context, stocks generated mixed results. The S&P 500 inched up by +0.3% for the month, and is now up +3.0% year-to-date. The Dow Jones Industrial Average (DJIA) also edged higher, advancing +0.7%. The tech-heavy Nasdaq Composite Index jumped +1.3%. The Russell 2000 Index of small cap stocks rallied relative to the Russell 1000 Index of large cap stocks, with returns of +3.3% and +0.3%, respectively. Growth stocks performed in line with value stocks during the month. In terms of sector performance, the top performers in the month were financials, industrials and information technology, with returns of +1.9%, +0.9% and +0.9%, respectively. Utilities and telecommunications services were the poorest performers, with returns of -2.1% and -1.3%, respectively. Commodities once again posted sharply negative returns, declining -7.3%. Real estate investment trusts (REITs) eased, declining by -0.6%.

International equity markets did not fare quite as well as their U.S. counterparts, with most regions of the world outside of the U.S. suffering. The MSCI World ex-U.S. Index declined -1.6%, and is now down -1.3% year-to-date. Although emerging markets resumed their decline in November, and underperformed developed markets. The MSCI Emerging Markets Index posted losses of -3.9%, and the MSCI EAFE Index, which measures developed markets performance, was down -1.6%. Regionally, Japan and the Pacific region ex-Japan generated the best relative performance, falling -1.0% and -1.1%, respectively. The Latin American region was the poorest relative performer, declining by -4.2%.

Fixed income markets suffered during November, as investors reacted to generally positive economic news and the increasing likelihood that the Federal Reserve will begin to raise interest rates at their December meeting. Markets are also beginning to discount a potential second rate hike by the middle of next year. Within this environment, the 10-year U.S. Treasury yield rose to 2.22%, up seven basis points from its 2.15% level of October 21st. Performance of broad-based fixed income indices was negative, with the Barclays U.S. Aggregate Bond Index giving back -0.3%. Global fixed income markets produced more severe losses, as the Barclays Global Aggregate ex-U.S. Index shed -2.8%. Intermediate-term corporate bonds were lower, with the Barclays U.S. Corporate 5-10 Year Index declining by -0.1%. The Barclays U.S. Corporate High Yield Index fell by -2.2%. Municipals bucked the trend, gaining +0.4%.

Download the full PDF

The information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained in this weekly review is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. All investments carry a certain risk, and there is no assurance that an investment will provide positive performance over any period of time. An investor may experience loss of principal. Investment decisions should always be made based on the investor’s specific financial needs and objectives, goals, time horizon, and risk tolerance. The asset classes and/or investment strategies described may not be suitable for all investors and investors should consult with an investment advisor to determine the appropriate investment strategy. Past performance is not indicative of future results.

Information obtained from third party sources are believed to be reliable but not guaranteed. Envestnet|PMC™ makes no representation regarding the accuracy or completeness of information provided herein. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.

Investments in smaller companies carry greater risk than is customarily associated with larger companies for various reasons such as volatility of earnings and prospects, higher failure rates, and limited markets, product lines or financial resources. Investing overseas involves special risks, including the volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. Income (bond) securities are subject to interest rate risk, which is the risk that debt securities in a portfolio will decline in value because of increases in market interest rates. Exchange Traded Funds (ETFs) are subject to risks similar to those of stocks, such as market risk. Investing in ETFs may bear indirect fees and expenses charged by ETFs in addition to its direct fees and expenses, as well as indirectly bearing the principal risks of those ETFs. ETFs may trade at a discount to their net asset value and are subject to the market fluctuations of their underlying investments. Investing in commodities can be volatile and can suffer from periods of prolonged decline in value and may not be suitable for all investors. Index Performance is presented for illustrative purposes only and does not represent the performance of any specific investment product or portfolio. An investment cannot be made directly into an index.

Alternative Investments may have complex terms and features that are not easily understood and are not suitable for all investors. You should conduct your own due diligence to ensure you understand the features of the product before investing. Alternative investment strategies may employ a variety of hedging techniques and non-traditional instruments such as inverse and leveraged products. Certain hedging techniques include matched combinations that neutralize or offset individual risks such as merger arbitrage, long/short equity, convertible bond arbitrage and fixed-income arbitrage. Leveraged products are those that employ financial derivatives and debt to try to achieve a multiple (for example two or three times) of the return or inverse return of a stated index or benchmark over the course of a single day. Inverse products utilize short selling, derivatives trading, and other leveraged investment techniques, such as futures trading to achieve their objectives, mainly to track the inverse of their benchmarks. As with all investments, there is no assurance that any investment strategies will achieve their objectives or protect against losses.

Neither Envestnet, Envestnet|PMC™ nor its representatives render tax, accounting or legal advice. Any tax statements contained herein are not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties. Taxpayers should always seek advice based on their own particular circumstances from an independent tax advisor.

© 2015 Envestnet. All rights reserved.

Featuring

Brandon Thomas
Chief Investment Officer

Articles By This Author

Video: Insights on Impact Economic and Market Overview: Second Quarter 2017 PMC Weekly Review - April 7, 2017 Economic and Market Overview: First Quarter 2017 Diversification: An Expensive Lunch Recently, But Free Over Time PMC Weekly Review - February 3, 2017 Economic and Market Overview: Fourth Quarter 2016 PMC Weekly Review - December 2, 2016 Post-Election, Will Markets and Portfolios Emerge Winners or Losers? Webinar Replay: Post-Election Winners and Losers PMC Weekly Review - November 4, 2016 Money Market Reform: What Does it Mean for Investors? PMC Weekly Review - October 7, 2016 Economic and Market Overview: Third Quarter 2016 PMC Weekly Review - September 2, 2016 PMC Weekly Review - August 5, 2016 Economic and Market Overview: Second Quarter 2016 PMC Weekly Review - July 1, 2016 Managing Volatility—A Little Planning Goes a Long Way A Surprise Brexit Leaves the Markets in Uncertain Territory Once Again PMC Weekly Review - June 3, 2016 PMC Weekly Review - May 6, 2016 Economic and Market Overview: First Quarter 2016 PMC Weekly Review - April 1, 2016 The Value of Value PMC Weekly Review - March 4, 2016 PMC Weekly Review - February 5, 2016 PMC Weekly Review - January 8, 2016 Economic and Market Overview: Fourth Quarter 2015 PMC Weekly Review - December 4, 2015 PMC Weekly Review - November 6, 2015 Economic and Market Overview: Third Quarter 2015 PMC Weekly Review -October 2, 2015 Smart Thinking PMC Weekly Review - September 4, 2015 Turmoil in Global Markets: China’s Currency Devaluation PMC Weekly Review - July 31, 2015 PMC Weekly Review - July 10, 2015 Economic and Market Overview: Second Quarter 2015 PMC Weekly Review - June 26, 2015 PMC Weekly Review - June 5, 2015 PMC Weekly Review - May 1, 2015 PMC Weekly Review - April 10, 2015 Economic and Market Overview: First Quarter 2015 Video: The PMC Spotlight: Quantitative Portfolios: Factor-Enhanced Series PMC Weekly Review - March 6, 2015 PMC Weekly Review - February 6, 2015 PMC Weekly Review - January 16, 2015 Economic and Market Overview: Fourth Quarter 2014 PMC Market Commentary: January 2, 2015 PMC Market Commentary: December 5, 2014 PMC Market Commentary: November 21, 2014 PMC Market Commentary: November 7, 2014 PMC Market Commentary: October 24, 2014 Economic and Market Overview: Third Quarter 2014 PMC Market Commentary: October 3, 2014 PMC Market Commentary: September 5, 2014 PMC Market Commentary: August 29, 2014 PMC Market Commentary: August 1, 2014 PMC Market Commentary: July 18, 2014 PMC Market Commentary: July 11, 2014 Economic and Market Overview: Second Quarter 2014 PMC Market Commentary: June 20, 2014 PMC Market Commentary: June 6, 2014 PMC Market Commentary: May 30, 2014 PMC Market Commentary: May 2, 2014 PMC Market Commentary: April 4, 2014 Economic and Market Overview: First Quarter 2014 PMC Market Commentary: March 7, 2014 Tracking Error Primer A Guide to PMC Quantitative Portfolios New Choices for New Challenges – The Case for Liquid Alternatives