Monday, December 3, 2018

Week In Review | Dec 3 2018

Ross Mayfield, CFA
Author position
Author position Correspondent Research Analyst

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.

Stocks Rally

  • Global stocks rallied last week. US equities had especially strong performance, with every sector returning over 2%. Stocks were bolstered by perceived dovish comments from Fed Chair Powell Wednesday and some positive indicators heading toward the holiday season.
  • The Hilliard Lyons View: After a volatile November, the S&P 500 will finish positive for the month thanks to last week’s gains. With rising rates front and center in the minds of investors, Powell’s remarks Wednesday gave the market some room to run, hinting that the 2019 rate path may be more gradual than expected. Oil stabilized above $50, halting seven straight weeks of declines ahead of this week’s OPEC meeting.

US stocks had an especially strong week, with every sector returning over 2%.

G20 Success

  • The G20 Summit ended Saturday, concluding two days of geopolitics. President Trump signed the USMCA, formally replacing NAFTA, and engaged in wide-ranging trade talks with Chinese President Xi Jinping. The Trump Administration agreed to hold current tariffs on $200 million worth of goods at 10% for an additional 90 days beginning Jan. 1. The US had previously threatened to raise the rate to 25%. Provisions to further reduce the trade deficit and continue negotiations on intellectual property protections, technology transfer, etc. were also agreed upon.
  • The Hilliard Lyons View: At this juncture, we view any progress on the US-China trade spat as positive. Though it is hard to determine how much of the G20 outcome is substantive vs. merely political posturing, financial markets should respond positively to the softer rhetoric. Though temporary, this truce paves the way for continued negotiations and should give the markets a brief sense of calm heading into the holidays.

Yields Waver as Stocks Advance

  • The 10-year Treasury dropped below 3.00% for the first time in nearly three months, flattening the 2/10 yield curve.
  • The Hilliard Lyons View: Chairman Powell noted that the Fed Funds rate may be just below the Fed’s “neutral” target rate. If the data-dependent Federal Reserve believes this, the 2019 rate path could be more measured than previously expected.

A Look Ahead

  • The Hilliard Lyons View: It is a heavy week for economic data. Highlighted by PMIs, there will be plenty of manufacturing, service, and employment data to parse. Further, given recent market-moving comments, Chairman Powell's speech Wed. will merit attention. All eyes will be on OPEC Thursday, as oil prices seek guidance. Though an output cut is widely expected, the language and terms will be critical. Finally, markets are closed Wed. in remembrance of former President George H.W. Bush.

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.