Monday, November 12, 2018

Week In Review | Nov 12 2018

Hilliard Lyons’ Investment Strategy & Research team is dedicated to supporting you and your Wealth Advisor. We provide investment guidance and help you separate meaningful news from idle noise via timely market commentary.

Broad Recovery in Stocks Continues

  • US stocks continued their rebound off October lows this week. Equities popped following Tuesday’s election results, touching one-month highs before losing some ground Friday. Ten out of eleven sectors were positive for the second straight week, a good sign of broad participation in the recovery. Small-caps were also up, though international lagged.
  • The Hilliard Lyons View: A few political items to digest last week, with mid-term elections and the departure of Attorney General Jeff Sessions. Despite continuing political tension, the market responded nicely to the developments, closing up 2.1% on Wednesday. We believe stocks responded positively to both the general reduction of uncertainty and the probability of near-term political gridlock. On the second note, a divided government makes tail-risk events like tax overhaul or impeachment less likely. Finally, crude oil is down around 20% from recent highs. Strong production from key markets and softening global demand have driven oil lower, though OPEC has recently signaled willingness to cut production.

Ten out of eleven sectors were positive for the second straight week

Fed Keeps Rates Steady

  • In line with expectations, the Fed left rates unchanged following their November meeting. Their statement again noted tight labor markets and strong consumer activity, but did acknowledge moderating business investment. The USD popped on the news, approaching one-year highs.
  • The Hilliard Lyons View: We believe a Dec. hike is all but inevitable at this point. While the Fed has its share of critics, its transparency and clarity under chairman Powell are appreciated. The note on slowing investment is of interest – business investment’s contribution to GDP hit a two-year low in Q3. We will also be watching a softening housing market moving forward, though its importance has somewhat diminished since the crisis.

Curve Narrows Slightly

  • The yield curve flattened last week, as the 10-year dropped while the two-year inched higher. The spread stands at 26 bps.
  • The Hilliard Lyons View: We believe the curve flattened in response to the Fed’s positive note on the US economy Thursday. Further confirmation of a Dec. hike likely boosted the short-end of the curve, which largely reflects monetary policy.

A Look Ahead

  • The Hilliard Lyons View: US consumers will be in focus next week, as both Walmart and Home Depot report earnings. In economic news, CPI data is out mid-week. Expect inflation to remain in focus as the Fed considers the pace of their rate normalization moving into 2019. Finally, potential vote recounts in Georgia, Florida, and Arizona will headline political news.

Key Definitions

  • S&P 500 – index composed of ~500 large-cap US equities listed on the NYSE or NASDAQ.
  • Russell 2000 Index – index composed of ~2000 small-cap US companies.
  • MSCI EAFE – index composed of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East. This index does not include US or Canadian companies.
  • MSCI EM - index composed of large and mid-cap securities across 24 emerging markets.
  • Bclys US Agg – (Bloomberg Barclays US Aggregate Total Return Bond Index, Unhedged) total return bond index composed of taxable, dollar-denominated debt.
  • Oil--WTI – represents West Texas Intermediate Crude Oil, a grade of light crude oil used as the underlying commodity in many indices and futures contracts.
  • Oil--Brent – represents Brent Crude Oil, a grade of light crude from the North Sea used as a global benchmark price.
  • IG Spread – (Investment Grade Spread, Bloomberg Barclays USD Liquid IG Corp Average OAS) represents the yield difference between an index of investment-grade rated bonds and a spot Treasury bond curve.
  • HY Spread – (High Yield Spread, Bloomberg Barclays US Corporate HY Average OAS) represents the yield difference between an index of below investment-grade rated bonds and a spot Treasury bond curve.

Important Disclosures

Each client’s investment needs, risk tolerance, and goals are different. This newsletter is not meant to be advice for any specific investor. Nothing in it should be construed as an offer to sell, or a solicitation of an offer to buy, any securities. This should not be used as the sole basis for an investment decision. Any opinions or estimates are subject to change without notice. For information about how any of this information applies to your personal financial situation, please contact your Wealth Advisor.

Past performance is not a guarantee of future results.

Although the information provided to you in this newsletter was obtained or compiled from sources that we believe are reliable, J.J.B. Hilliard, W.L. Lyons, LLC cannot, and does not, guarantee that the information or data is accurate, timely, valid, or complete.

All investing involves risk, including the possible loss of principal. You should carefully consider investment objectives, risks, charges, and expenses of any investment before investing. Diversi-fication and asset allocation do not guarantee a profit or guarantee against a loss.

Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments. The bond market is also volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect can be more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks.