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

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. © 2019 Envestnet. All rights reserved.