Monday, November 19, 2018

Week In Review | Nov 19 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.

Growth Concerns Hit Stocks

  • US stocks tumbled last week. We attribute underperformance to a familiar cocktail of headwinds: global growth concerns, input cost inflation, trade tensions, etc. Income-oriented stocks outperformed while Tech & Consumer Discretionary struggled, continuing the theme of changing leadership that began earlier this year. Anecdotally, Apple and its suppliers fell on soft production guidance, bolstering fears of slowing growth. Oil was down a sixth straight week, ~26% off highs.
  • The Hilliard Lyons View: Oil’s slide continues to make headlines and stoke fears of slowing global growth. At its core, the recent decline is an interplay between supply and demand. Recent oversupply concerns are highlighted by US-granted waivers for Iranian oil, creating an unexpected infusion of crude to the market. In response, OPEC is considering supply cuts, which should steady the price. On the other end is demand: With global GDP slowing, the need for oil in the coming months is expected to temper. This unease has helped fuel recent stock market volatility.

Oil’s slide continues to make headlines and stoke fears of slowing growth.

Proposed Brexit Deal Rocks UK

  • British PM Theresa May unveiled her proposed Brexit deal Wed. The deal, struck with EU negotiators, instigated chaos in the UK political arena and financial markets. Two key cabinet ministers promptly resigned, sending stocks tumbling and the British pound to its worst day in over two years.
  • The Hilliard Lyons View: May’s deal would be a “soft Brexit,” keeping the UK in the EU customs union indefinitely, among other things. This enraged “hard Brexit” proponents within May’s own party, who want a clean break from the EU. In addition to the major resignations, a vote of no confidence against May is being called for, which could lead to her loss of power. With the March 29, 2019 deadline fast approaching, May has signaled that it is either her deal or no deal, at this point. A “no deal” Brexit would be potentially catastrophic.

Yield Curve Holds Steady; Bonds Pop

  • The curve held firm at 26 bps, though yields dropped Friday following dovish comments from Fed Vice Chairman Clarida.
  • The Hilliard Lyons View: We view any dovish rhetoric from the Fed as largely positive. A rate hike overshoot remains a headline risk to US growth, and a dovish voice in the room from the recently confirmed Vice Chairman is welcomed.

A Look Ahead

  • The Hilliard Lyons View: Housing starts and home sales data will be reported this week, highlighting one of the softer areas of the US economy. ISR will also be watching high yield credit spreads, which hit a 20-mo high on oil and energy weakness.

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.