Data
U.S. equity benchmarks all moved lower on the week.[1]
All major US benchmarks sank by at least 4.5%.1
US equities at large have seen moves of at least 3% for 3 weeks in a row.1
S&P 500 sub-sectors were almost all lower last week.
Utilities & Real Estate were the only positive sectors.1
Financials & Industrials led to the downside with losses of over 6.2%.1
The CBOE Volatility Index (VIX) gained 28% to end the week at 23.23.1
US Treasury yields fell lower last week, led by longer maturities.
The 2yr US Treasury now yields more than then 5yr. 1 (inverted)
Foreign bond yields were lower in Europe & Asia.1
Commodities as an aggregate asset class moved higher last week.
WTI Crude gained 3.3%.1
Gold rose over 2%.1
The US Dollar index lost 0.7%.1
In our opinion, U.S. economic data was mixed on the week.
Construction data was soft in the most recent reading.1
The labor market remains very robust. 1
Same store sales sank slightly from a 12 year high.1
An index of equities outside the U.S. (MSCI EAFE) was down albeit less than its US peers.1
Conclusion
US equity indices gave up most of the previous week’s gains during the 4 day trading period.
All major US equity indices were down over 4.5%.[2]
The S&P 500 dropped 4.6% as global growth concerns and a flattening yield curve were exacerbated by negative developments regarding US-China relations.2
Market participants seemed to be spooked by the arrest of a prominent Chinese technology company executive just after the 90 day US-China “trade truce” was announced.
The small-cap tracking Russell 2000 & Nasdaq led to the downside.
With a loss of 5.56%, the Russell 2000 closed at its lowest point of the year. 2
S&P 500 sub-sectors were mostly lower on the week.
Utilities and Real Estate were the only positive sectors.
Utilities are now outperforming the S&P 500 by over 8% year-to-date. 2
Financials, Industrials, & Healthcare led to the downside.
As a reminder, Financials were a consensus “overweight” by many pundits coming into 2018 and are now down over 10%.2
Equities traded outside of the US decreased as well last week, albeit much less than domestic markets.
Emerging Markets outperformed and continue to bounce around levels hit last month. 2
We remind readers of our comments in our 4th quarter newsletter that outlined how continued outperformed by US equities over Int’l shares was unlikely.
WTI crude oil rose 3.3% last week as hedge funds cut bets on rising prices to the lowest level in 3 years. 2
OPEC agreed to cut production by 1.2 million barrels a day which was higher than expected. 2
US Treasury yields dropped across the maturity curve last week.
The longer maturities (10yr/30yr) dropped more than the shorter ones. 2 (flattening)
The difference in yield (spread) between the 2yr and 10yr US Treasuries dropped to 0.14% which is its smallest margin since 2007. 2
Gold moved notably higher last week as it rose over 2% to close at $1252.60. 2
In our opinion, the precious metal has recently benefited from declining interest rates on the back of rising expectations for the Fed to turn more dovish.
We believe expectations for further tightening by the Federal Reserve have diminished significantly in recent weeks.
We will be closely watching this “repricing” in order to continue to look for opportunities.
Ryan A. Mumy, CFP®, AIF®
Chief Investment Officer
Contact:828/855-9400 or info@CIASonline.comor rmumy@bloomberg.net
[1]Source: Bloomberg – 12/7/2018
[2] Source: Bloomberg – 12/7/2018