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%.

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