November markets rebounded somewhat from October’s swoon as investors took comfort in moderating language from Federal Reserve Chairman Jerome Powell. Monetary normalization represents one of the biggest threats to one of the longest bull markets as risk takers have become inured to below-market interest rates. Recent Fed comments assuaged investors’ fears of a steady ratcheting up of rates. The ECB, which will be ending its quantitative easing program this month, will also be sensitive to tightening too quickly. US equities rallied between 1-2% in response. US large and small caps are positive for the year.
International equities flat lined in November as the global economic backdrop dimmed. Most major currency relationships remained stable for the period. Economists gauge the chance of a recession in Japan at one-third over the next 12 months, according to a recent Bloomberg survey.
Emerging market equities surged 4% in November, closing half the gap from October. The rebound still leaves the index of developing countries 12% lower for the year. China represents more than a quarter of the index and incremental economic gains there helped propel that market higher. Beijing is attempting to reduce debt while providing stimulus to the banking system. A reduction of trade tensions would clearly help emerging equities.
Interest rates retreated incrementally last month due to weaker oil prices. Spot crude plunged more than 20% in response to a global supply glut. Investors, who had expected Iran sanctions, were caught off guard by a 6-month trading extension. Meanwhile, US production ramped above 12mm barrels per day.
High yield bonds suffered since energy infrastructure represents a sizable portion of that market. Corporate high yield shed nearly 1% for November, leaving the market flat for the year.