Data
U.S. equity benchmarks exploded higher last week.[1]
US equities had their best week since December of 2011.1
The S&P 500, Nasdaq, & Dow Jones Industrial Average all rose around 5%.
S&P 500 sub-sectors were all higher last week.
Healthcare & Technology led to the upside with gains over 6%.1
Defensive sectors of Utilities, Staples, & Real Estate were up the least at just under 3%.1
The CBOE Volatility Index (VIX) declined 16% to end the week at 18.07.1
US Treasury yields fell lower last week.1
In November, yields on US Treasuries as a whole dropped the most in over a year.1
Foreign bond yields were lower in Europe & little changed in Asia.
Commodities as an aggregate asset class were mostly flat last week.
WTI Crude oil stopped the recent bloodbath with a gain of 1%.1
Gold declined slightly.1
The US Dollar index gained 0.4%.1
In our opinion, U.S. economic data was mixed on the week.
The National Activity Index beat expectations to the upside.1
Measures of manufacturing slowed down in November.1
The 2018 slump in new home sales extended into the most recent readings.1
An index of equities outside the U.S. (MSCI EAFE) rose just over 2% on the week.1
Conclusion
US equity indices soared to their best week since December 2011.[2]
The Nasdaq led to the upside with a gain of 5.6%. The Dow & S&P 500 weren’t far behind with gains of 4.9% and 5.16% respectively.2
We believe this buying flurry was prompted by the Federal Reserve’s statement indicating a possible softening in their rate hiking and hope of a decline in US-China trade tensions.
Of note is the relative underperformance by Small Caps (Russell 2000).2
In our opinion, this is as a result of small co’s being negatively impacted by higher interest rates as they carry a large amount of variable rate loans.
S&P 500 sub-sectors were all higher on the week.2
Healthcare led to the upside with a gain of nearly 7%; it is now the 2018 best performer.2
The traditionally defensive sectors (Staples, Utilities, Real Estate) were up the least.
In our opinion, there’s a possibility that the recent sizable outperformance of the comparatively defensive sectors could slow into year end. We view this as normal and in of itself, does not provide a reason to adjust allocations. (aka chase)
As discussed last week, the market reacted very favorably to Federal Reserve Chair Jay Powell discussing interest rate policy as being “just below” the level the Fed sees as ideal for the current economy.
This perceived “dovish pivot” by the Fed on Wednesday prompted a large bounce higher in global equity markets.
Equities traded outside of the US bounced higher as well last week, albeit less than domestic markets.2
Emerging Markets led to the upside while European shares underperformed.2
We believe Emerging Market countries could see a boost from low oil prices as most of them are net importers of crude.
WTI crude oil gained roughly 1% last week after falling 22% in November.2
OPEC meets this week after Russia, Saudi Arabia, & the US held talks at the G-20 meeting.
We believe the oil market is continuing to adjust to the large amount of supply being brought on by US producers as technological efficiencies have made them the new global swing producer.
Recent data shows the average price at which domestic producers would consider shutting down wells to be $35/barrel.2
The US Dollar continued its very strong 2018 with a gain of 0.4% last week.2
As we continue to closely watch the dynamic surround the USD, we point to the possible driver of this year’s strength in the greenback being repatriation of overseas earnings.
So far in 2018, US companies have brought back the most US Dollars ever recorded and we do not believe this momentum will continue.
Ryan A. Mumy, CFP®, AIF® - Chief Investment Officer
Contact:828/855-9400 or info@CIASonline.comor rmumy@bloomberg.net
[1] Source: Bloomberg – 11/30/2018
[2] Source: Bloomberg – 11/30/2018