Geopolitical events and Federal Reserve comments occupied headlines and perpetuated market volatility throughout November. For most of the month, markets were transfixed by continuing trade tensions between the U.S. and China while pondering whether the Fed was being too aggressive in its bid to quell burgeoning inflation. While Fed and trade policy actions will undoubtedly impact market psychology in the months ahead, the economy is likely to remain firmly supported by strong fundamentals and a confident consumer backdrop. U.S. GDP grew at an annual rate of 3.5% in the third quarter - indicative of strong overall growth. The Consumer Confidence Index, although slipping slightly in November, lingers near historic highs. Manufacturing activity remains robust. The Institute for Supply Management’s Purchasing Managers Index registered at 59.3 in November. A reading of 50 or higher reflects expansionary conditions. The employment picture continues to be positive. Although U.S. jobless claims rose to a six month high, non-farm payrolls were up 250,000 jobs in October, besting estimates and holding the unemployment rate steady at 3.7%, the lowest since 1969. Indicative of a tight jobs market, average hourly earnings increased 3.1%, prompting inflationary concerns. The housing market continues to be an area of the economy that is showing weakness. Tight housing supply and high land and construction costs have priced many would-be-buyers out of the market.
Equity markets clawed back into positive territory in late November as Fed Chairman Powell’s speech before The Economic Club of New York on November 28th sparked a “dovish” tone, temporarily abating global growth concerns. For the month, The DJIA and the S&P 500 Index returned 2.11% and 2.04%, respectively to lead domestic markets. While value stocks picked up ground in November, growth stocks continue their year-to-date dominance. 8 of the 11 S&P 500 Index sectors ended the month in positive territory, while the Communication Services, Technology and Energy sectors finished lower due to tech-share profit taking and falling oil prices. Positively, the final wave of quarterly earnings reports showed most companies meeting or exceeding expectations.
The 10-year U.S. Treasury yield retreated approximately 20 basis points to finish the month yielding 3.01%. As such, prices on intermediate and long-term government bonds ended November higher. Despite the rally, all but the shortest maturity government bonds remain in negative territory for the year. Notwithstanding lower government rates, credit spreads on corporate debt, both investment-grade and high-yield, continued to widen over November, resulting in most corporate issuances posting losses for the month. Although recent comments from Powell stated that rates are “just below” neutral, the Fed is largely expected to raise rates by 25 basis points at its December meeting to a range of 2.25%-2.50%.