Commentaries
PMC Weekly Review - December 9, 2019
A Macro View—November Monthly Recap
Domestic equity markets ended the month with positive returns, reaching new all-time highs on November 27 on the back of positive news of a potential trade deal agreement between the US and China. Equity markets consistently appreciated throughout the month, with reduced volatility as the Cboe Volatility Index fell to 11.75, a level not seen in more than a year and a half. As the domestic economy continues its record-breaking expansion, the Federal Reserve (the Fed) is optimistic that the expansion will continue, and remains committed to step in as necessary to foster further growth.
For the month of November, the S&P 500 Index returned 3.63%, and the DJIA posted a gain of 4.11%. Year to date, both indices have shown strong performance, returning 27.63% and 23.05%, respectively. Within domestic stocks, small caps led large caps, as the Russell 2000 Index returned 4.12%, while the Russell 1000 Index generated a return of 3.78%. Mid cap trailed both small cap and large cap stocks, with the Russell Mid Cap Index gaining 3.57%. Growth stocks outperformed value stocks, particularly within the small cap space, as the Russell 2000 Growth Index returned 5.89% compared with 2.34% for the Russell 2000 Value Index. Sector performance was mostly positive, with the growth-oriented sectors such as Information Technology and Health Care posting the strongest performance, returning 5.38% and 5.04%, respectively. The income-oriented sectors, Real Estate and Utilities, struggled the most, declining 1.72% and 1.84% on a respective basis. The Bloomberg Commodity Index fell 2.56% in November, and precious metals and energy both sold off. Bitcoin had a difficult month, dropping 20% as China increased regulatory pressure on cryptocurrency businesses.
International equity markets underperformed relative to their domestic counterparts, as the MSCI ACWI ex-U.S. Index returned 0.88% in November. Emerging markets equities underperformed international developed equities, with the MSCI EM Index declining 0.14%. On November 1, the European Central Bank (ECB) had a change in management, as Christine Lagarde was appointed President of the ECB. She steps into the new role as the world is awash in debt: The Institute of International Finance reported that global debt reached $250 trillion, or 320% of global gross domestic product (GDP). The ECB warned of the potential side effects of its easy money policy, citing concerns with excessive risk-taking from investors and insurers. How the ECB under Lagarde supports the European economy going forward will be closely watched by investors. The labor markets across the eurozone strengthened, as unemployment declined to 7.5%, its lowest level since July 2008. Further, the number of individuals out of work fell to 12.3 million in November.
Fixed income markets posted mixed returns for the month, as Treasury yields across the curve increased. The yield curve steepened, with the yield on the 3-Month Treasury Note increasing five basis point to 1.59%, while the yield on the 10-Year U.S. Treasury Note increased by nine basis points to 1.78%. The Fed reaffirmed the target federal funds interest rate by indicating that it likely will remain unchanged in the coming months, unless the economy shows signs of further slowing. Labor markets remain strong, with unemployment rates near multiyear lows. The Bloomberg Barclays U.S. Aggregate Bond Index fell 0.05%, outperforming US government securities by 24 basis points, as both investment grade corporates and high yield posted solid performance, ending the month up 0.25% and 0.33%, respectively. Longer-maturity bonds outperformed shorter ones, while global bonds trailed their domestic fixed income counterparts, with the Barclays Global Aggregate ex-U.S. Index falling by 0.76%. Emerging markets debt generated negative performance, returning -0.18% in November. Municipal bonds posted positive returns, outperforming their taxable counterparts, with the Bloomberg Barclays Municipal Index returning 0.25% for the month. The longer-term municipal securities posted better returns, with the 22+ Year Index beating the 1-2 Year Index by 13 basis points.
Scott Keller
Portfolio Manager
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