November Market Overview

Business person working at desk looking at charts

The majority of global equity indices were up strongly in November, including the S&P 500, which rose 3.6%. The broad-based strength was largely attributable to investor optimism surrounding a potential “phase one” trade agreement between the U.S. and China. Indeed, throughout the month, both sides telegraphed progress toward a deal – and China has taken actions that illustrate a greater willingness to compromise on some key issues, including more strict enforcement of intellectual property rights and significant agricultural purchases. We, too, are encouraged at the prospect for a “phase one” trade deal (and preferably a full resolution), yet consistent with the position we have taken throughout the year, we remain cognizant of the fact that these conversations can deteriorate rapidly, as has happened in the past and, as of the writing of this note, is happening again.

Meanwhile, fixed income indices were mixed in November with Treasuries lower across the yield curve while corporates and municipals rose slightly. Recall, the Fed has telegraphed that it is done decreasing interest rates, at least for now; thus, movement in interest rates – and the corresponding impact to fixed income indices – is largely predicated on macroeconomic developments and investors’ growth forecasts.

And finally, in spite of the uncertainty and volatility surrounding the trade war, the U.S. stock market has enjoyed very strong returns, with the S&P 500 up 27.6% YTD through the end of November. The strength of the markets coupled with concerns surrounding when the next recession – or market pullback – may occur has caused many investors to de-risk and move into cash awaiting the next opportunity.

A recent article in the Wall Street Journal called attention to the vast liquidity sitting on the sidelines, noting that there is approximately $3.4 trillion in investors’ money market accounts, the highest levels since 2008. Goldman Sachs also spoke to this in a recent note that illustrated the dramatic inflows to cash funds of over $500 billion over the last 12 months.

The level of cash sitting on the sidelines is meaningful because it could either fuel further upside in the markets if/when investors become more receptive to increasing their equity allocations, or it could serve to soften the blow if/when markets suffer a pullback. Regardless, we view both scenarios positively for the broader equity markets.

Looking forward, we continue to look for a definitive resolution to the U.S.-China trade war, which we believe has the potential to be a meaningful driver of the market. We also anticipate that developments with the 2020 U.S. presidential race will become a greater focal point among investors and anticipate periods of increased volatility throughout the campaign. More to come with next month’s commentary on our outlook for 2020 – so stay tuned.

The monthly Market Overview is written by two members of MACRO’s Investment Committee: Mark Cortazzo, CFP®, CIMA®, and Christopher Moffett, CFA.

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