Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morngan as of 11/16/18. Rates and Economic Calendar Data from Bloomberg as of 11/19/18. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
Retailers take the spotlight this week. Third quarter earnings season is coming to a close, however, there are still a number of retailers scheduled to release earnings this week ahead of the Thanksgiving holiday break. Speaking of Thanksgiving, this leads us into Black Friday, the unofficial start of the holiday shopping season. However, before we dive into this timely topic, let’s review the economic and market activity that took place last week.
Global equity markets were largely in the red last week, with the exception of emerging markets, which advanced 1.05% according to the MSCI EM Index. In the U.S., weekly returns had been strong in November, following a very disappointing October, but suffered a setback last week. The S&P 500 Index, the Dow Jones Industrial Average, and the NASDAQ Composite were down 1.54%, 2.15%, and 2.09% respectively for the week. Small cap stocks could not avoid the retreat either, giving up 1.37% for the week, as measured by the Russell 2000 Index.
Negative news outweighed the positive news during the week. For example, we saw tech shares fall drastically early in the week when an Apple supplier cut forward guidance, WTI Crude plummet to $56 a barrel at the low, and Brexit concerns reemerge in the United Kingdom. On the bright side, we did receive news mid-week, and again on Friday, that trade discussions between the U.S. and China have resumed and some even suggested that President Trump had an optimistic tone in this regard. We contend that the uncertainty here has kept a lid on potential stock market gains; therefore, any progress reported on this front (perhaps after the G20 meeting later this month) should be good news for the stock market.
Shifting our focus back to retailers and the holiday shopping season, we have companies such as Target, Lowe’s, and Best Buy reporting on Tuesday before the start of the Black Friday annual shopping event. A confident consumer, supported by a strong jobs market and moderately rising wages, should continue to translate into strong revenues and a successful holiday shopping season in 2018. Many companies and trade publications are forecasting retail sales to grow 5%+ from a year ago. In this regard, Deloitte is forecasting that holiday retail sales could exceed $1.1 trillion this year with E-Commerce sales forecasted to increase by 22% through the holidays. Likely benefactors of a strong holiday shopping season include traditional retail companies in addition to companies that derive revenues from their respective role in the E-Commerce ecosystem. Investors certainly would be pleased to see a “Santa Claus Rally” to finish out the year of 2018.
We remain optimistic on growth prospects through the end of the year and into 2019 while recognizing that many headwinds and uncertainties persist. As a result, we encourage investors to stay disciplined and work with experienced financial professionals to help manage their portfolios through various market cycles within a well-diversified framework that is consistent with their objectives, time-frame and tolerance for risk.
Important Information and Disclaimers
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Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging markets.
There are special risks associated with an investment in real estate, including credit risk, interest rate fluctuations and the impact of varied economic conditions. Distributions from REIT investments are taxed at the owner’s tax bracket.
The prices of small company and mid cap stocks are generally more volatile than large company stocks. They often involve higher risks because smaller companies may lack the management expertise, financial resources, product diversification and competitive strengths to endure adverse economic conditions.
Investing in commodities is not suitable for all investors. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity.
Products that invest in commodities may employ more complex strategies which may expose investors to additional risks.
Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original cost upon redemption or maturity. Bond Prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.
MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.
MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.
Russell 3000: The Russell 3000 measures the performance of the 3000 largest US companies based on total market capitalization and represents about 98% of the investible US Equity market.
ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.
ML Muni Master [Merill Lynch US Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.
Investors cannot directly purchase any index.
LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.
The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.
The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.
DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITs that primarily own and operate income-producing real estate.