ND&S Weekly Market Commentary – Santa’s Rally

December 3, 2018

November was a volatile time for global markets. The price of oil tumbled, tech stocks were pressured and credit spreads widened. The risk-off scenario gave way to a rotation into defensive areas such as health care, consumer staples and utilities.

Last week was extremely busy, as U.S. stocks roared back buoyed by Fed Chair Jerome Powell’s commentary. Powell said that interest rates were just ”below” the neutral rate. This dovish comment was far from the long way off sentiment he had shared only a few months ago. The S&P 500 notched its best week in 7 years, returning 4.9% while the DJIA gained 5.3% and the NASDAQ rebounded 5.6%.

International markets fared well with the developed index (EAFE) gaining 1.0% and emerging (EEM) up 2.7%. The darkest cloud over global markets has been China/US trade relations. At Saturday’s meeting between President Trump and China’s Xi Jinping at the G-20 summit in Argentina, the two leaders agreed to a truce for 90 days to allow for further negotiations. Hopefully, a good sign and should provide a lift to markets.

Though oil finished the week marginally higher, the global glut sent prices down 20% for November. A retaliatory response is expected at OPECs meeting this Thursday.

In October, U.S. Housing markets have shown sharp declines in pending sales of existing homes and sales of new homes. The dramatic decline in oil, a softening in housing, and the possibility of an inverted yield curve point towards a lid on inflationary expectations. The fed will possibly exhibit more caution about next year’s rate hikes at their December 16th meeting.

As a result of weakening economic data and dovish Fed comments, the 10yr Treasury yield declined to 3.01%. This represents a decline of 3Bps for the week and its lowest yield since mid-September. The yield curve has been flattening of late as the spread between short and long-term rates has narrowed. An inverted yield curve historically has signaled a recession is on the horizon.

Several important economic reports and news are expected this week. On Monday, PMI manufacturing data and automobile sales will be reported. ISM non-manufacturing index will be released Wednesday and November’s Job report coming Friday. The much anticipated OPEC general meeting to determine production levels will begin on Thursday.

“No problem of human making is too great to overcome by human ingenuity, human energy and untiring hope of the human spirit.” – George H. W. Bush

Happy Hanukkah!