November 2019 Monthly Market Review

Public comments by Federal Reserve members in November further signaled the likelihood of a pause in the current easing cycle, but also confirmed that policymakers are prepared to take the steps necessary to extend the economic expansion. This guidance impacted both rate and currency markets. Rates in the U.S. and abroad rose, and the U.S. dollar (USD) rebounded from its October sell-off against a significant number of developed and emerging markets (EM) currencies. Equity markets welcomed the prospect of additional stimulus and registered gains in November. However, the strength of the USD was a headwind for international developed markets and EM equities, which lagged their U.S. counterparts.

Since the unexpected spike in repo rates in mid-September, the Fed has played a key role as a liquidity provider in this area of the funding market.  The Fed’s overnight and term operations have largely been successful in keeping repo rates close to the federal funds rate.  The conditions that caused the mid-September repo spike will likely reoccur in mid-December.  It is possible that the Fed, in an effort to avoid a damaging rise in repo rates over the last few weeks of the year, may have to increase the size of its repo program again heading into year-end.

With global central banks standing at the ready to provide stimulus, global equities rose across most regions. U.S. equities led the way, climbing to record highs on the back of easing trade tensions with China and better than expected corporate earnings.  A pick up in merger and acquisition activity also boosted investor confidence.  EM equities rose in local terms but fell in USD terms, lagging both U.S. and international equities. While fears of a slowdown in global growth dampened returns across EM countries, there was dispersion across geographies.  China was among the top performers, benefiting from optimism surrounding the probability of the U.S. and China reaching a “phase one” trade deal in which both sides would gradually lift previously imposed tariffs. On the opposite end of the spectrum, Latin America weighed on EM returns as slow income growth and corruption fueled political tension and social unrest across the region.  The trend of growth outperforming value continued during the month and was consistent across all regions, despite diverging regional returns.

Another consistent theme across regions throughout the month was weak performance among real estate stocks.  U.S. real estate stocks fell on an uptick in Treasury yields.  Asian REITs also declined for the month.  In contrast, Europe advanced, led by the U.K. as property fundamentals, particularly in the office and industrial markets, remained strong as investor concern about a hard Brexit has dissipated.

Elsewhere in real assets, natural gas prices fell 15.3%, as measured by Henry Hub spot prices. The sharp decline was largely weather-related and short term in nature; however, prices have trended downward during the year.  U.S. natural gas production continues to grow.  Despite growing demand low cost production continues to outstrip demand increases.

Indices referenced are unmanaged and cannot be invested in directly.  Index returns do not reflect any investment management fees or transaction expenses. This report is intended for informational purposes only; it does not constitute an offer, nor does it invite anyone to make an offer to buy or sell securities.  Information herein has been obtained from third-party sources that are believed to be reliable; however, the accuracy of the data is not guaranteed and may not have been independently verified. The content of this report is current as of the date indicated and is subject to change without notice.  It does not take into account the specific investment objectives, financial situations, or needs of individual or institutional investors.   All commentary contained within is the opinion of Prime Buchholz and intended solely for our clients. Unless otherwise noted, FactSet was the source for data used in this report. Some statements in this report that are not historical facts are forward-looking statements based on current expectations of future events and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Past performance is not an indication of future results.