With one month remaining in 2019, financial markets are on track for robust annual gains across the board, rebounding from a lackluster 2018. Global equities advanced in November as the prolonged US-China trade negotiations continued to drive the market discourse. The Russell 3000 Index, one of the broadest measures of US stock market performance, advanced +3.8% on the month and is up +27.3% year-to-date. International stocks lagged their domestic counterparts in November with a +0.9% monthly gain per the MSCI ACWI ex-US Index, which is up +16.5% YTD. Investors have largely shunned international stocks as economic malaise, combined with diminishing returns of accommodative monetary policy, leave limited room for growth in both European and Asian markets.
Fixed income markets fell slightly on the month, with the Bloomberg Barclays US Aggregate Bond Index losing -0.1% in November, though YTD gains remain strong at +8.8%. 10-year Treasury yields ticked up slightly as the yield curve steepened, easing concerns over a popular recession indicator. Gold prices, traditionally seen as a hedge against calamity, fell as confidence grew in equity markets, with the metal losing -3.4% in November, bringing the full-year gain to +14.2%. A balanced portfolio, comprised of 60% in global equities and 40% in fixed income, would have gained +1.7% in November for a YTD gain of +17.4%.
Looking past the headlines and into the data, we turn to our Three Dials, all of which are unchanged from last month and continue to take a modestly pro-growth stance into year-end.
- Market Sentiment and Momentum: Positive
The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average, the three most widely tracked stock indexes in the US, all achieved new record highs during the month of November. International indexes, while still well short of all-time highs, continue to see strong upward trends. On balance, a broad-based rally appears to be in place across global markets, which leaves our Momentum Dial in a “Positive” reading for the time being.
- Economic Fundamentals: Positive
Third quarter GDP was revised upward to a +2.1% annual clip, and a healthy consumer sector and robust jobs market bode well for the holiday shopping season. While manufacturing continues to be the lone blemish amongst a strong slate of economic indicators, it appears that the worst of the manufacturing recession may be behind us. All things considered, our Fundamental Dial remains in a “Positive” position through the end of November.
- Valuation: Negative
Valuation remains a concern, as the vast majority of stock gains in 2019 have been a result of multiple expansion as opposed to earnings growth. In fact, according to Credit Suisse, EPS growth in both value stocks and small/mid cap stocks has been negative on the year despite gains in excess of 20% for the respective indexes. A such, our Valuation Dial sits in a “Negative” position.
On balance, our Three Dials composite reading takes a “Cautiously Optimistic” stance heading into the final month of the year.
Ethan Pollard serves as Senior Analyst and Wealth Advisor with Archetype Wealth Partners. He handles many of the research, trading and financial planning responsibilities at Archetype Wealth Partners, including the development of our economic and portfolio risk sensitivity models. Originally from Houston, Ethan currently resides in Chapel Hill, North Carolina with his wife Katie. Archetype exists to help families thrive across generations.
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