Weekly Commentary (11.19.18) – Rudderless Markets

November 19, 2018

Most equity markets were rudderless last week (once again) as the battle between bulls and bears continues. The 3Q’18 earnings season is coming to a close with 95.3% of companies having already reported. So far, S&P 500 earnings per share have grown 32.9% year-over-year in the third quarter … excellent results! Bears are pointing to the fact that global and S&P 500 earnings have likely peaked. We agree, but earnings for next year still look quite reasonable with S&P 500 earnings expected to grow roughly 10%. Despite excellent news on the economic front, continuing concerns over trade wars, Fed action (a December rate hike is already in the cards along 3 rate hikes for next year), political bickering in Washington and ongoing geopolitical tensions have kept the mood on Wall Street quite dour.

For the week, the DJIA lost 2.15% while the S&P 500 gave back 1.54%. The volatile Nasdaq declined 2.09% after some profit-taking in technology stocks. Developed international markets were also weak as the MSCI EAFE index dropped 1.42% for the week. Emerging markets were the only bright spot as the MSCI EM index gained 1.05% (finally). Small company stocks, represented by the Russell 2000, gave back 1.37% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher in a flight to safety. As a result, the 10 YR US Treasury closed at a yield of 3.08% (down ~11 bps from the previous week’s closing yield of 3.19%). Gold prices closed at $1,221/oz – up 1.2% on the week. Oil prices continued their sell-off during the week as oil closed at $56.46 – down 3.73% for the week (good for consumers and businesses …).

The week ahead will bring a host of economic reports – housing starts and existing home sales, durable goods, consumer sentiment and flash PMI. We expect the reports to be mostly positive, but investors will be focusing on any comments from the Fed and speculation about the upcoming G-20 meeting and a possible resolution of a deal with China.

Volatility is here. As always, we plan to look through the day-to-day news and focus on longer-term objectives. Investors should stay the course and stick close to their long-term asset allocation targets.

Most importantly, we wish to extend to all a very Happy Thanksgiving!

“An attitude of gratitude brings great things.” – Yogi Bhajan