Despite the negative nature of the Hong Kong protests and the impeachment hearings, which dominated the news, investors remained confident in the strength of the U.S. economy, driving equity markets to new highs. The protests, on the heels of October’s announcement of a “Phase One” trade deal with China, spurred legislation supporting the protestors, which President Trump signed late in the month. With increased friction expected per the bill, market attention will likely turn to how previous negotiations are affected and whether the trade war with China will be further hindered. While investor concern may intensify, the consumer continues to power the economy. With unemployment remaining near record lows of 3.6% and persistently strong job growth, consumer confidence and readiness to spend remained robust. Indeed, U.S retailers saw record spending on Thanksgiving Day, Black Friday, and Cyber Monday. November saw GDP come in at 2.1%, stronger than the anticipated 1.9% growth rate. Inflation remained benign, hovering near the 2% mark depending on the indicator. Manufacturing sentiment, the consistent weak spot for several months now, weakened slightly to 48.1, indicating contractionary sentiment in that segment. Finally, the Fed did not meet in November and the market expects no changes at the upcoming December meeting.
With positive sentiment driving markets for most of the month, November equity markets posted another impressive return for U.S. equities. The NASDAQ index, dominated by large technology stocks, continued to lead performance with a 4.65% return in November and 31.93% year-to-date. Information Technology set the pace for sector performance again, followed closely by the Health Care and Financial sectors. Laggards for the month were Real Estate and Utilities, both of which posted negative returns in November. Once again domestic equity returns outpaced their foreign counterparts which, despite experiencing double digit gains so far this year, significantly trail U.S. market returns.
With the Fed on the sidelines, and no real changes in Fed policy expectations, it’s no surprise that November was a calm month for the bond market. Corporate and High Yield bonds experienced the best performance as positive investor sentiment related to corporate America carried over to bonds. Otherwise, generally rising rates, especially in intermediate maturities, led other indices to a flat to slightly negative return. As bond prices generally move in opposite direction of interest rates, the coupon return provided by bond investments as a group, struggled to overcome price depreciation. Accompanying this rise in yields is a more traditionally sloped yield curve, where longer maturities offer higher yield than shorter bonds.
Past performance is not indicative of future returns.
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