October – November 2018

U.S. Economic and Market Highlights

  • Stock market volatility has increased in recent months. History shows that it is common for the U.S. stock market to be more volatile leading up to an election. Other factors are concerns about current tariffs, expanding potential for a trade war with China, and the FED’s more aggressive approach to tightening interest rates.
  • The result of the mid-term election was that the Democrats took control of the House of Representatives, leading to a split Congress and likely increased political gridlock. In the past, these circumstances have actually helped to improve stock market performance.
  • U.S. wages continued to grow, with a 3.5% increase year over year, showing signs of strength thanks to the robust jobs market, while other factors affecting the inflation rate moderated, especially energy prices which declined significantly to $50/barrel at the end of November.
  • The core Personal Consumption Expenditure (PCE) price index remains at 2%, the Fed’s inflation target, giving some latitude to the Fed regarding their interest rate adjustment decisions.
  • Optimism for the U.S. business cycle remains strong as the index’s year-over-year growth accelerated to 7.0%, the highest rate since 2010. The upward trend suggests economic activity will likely continue to expand at a steady pace in the near term.
  • The sell-off in stocks in October consisted of investors rotating out of momentum stocks, such as the technology and consumer discretion sectors, and into defensive stocks such as consumer staples and utilities, resulting in the worst performing month for the S&P 500 since 2011.
  • Bond values also declined in October, as corporate issues were partially impacted by the stock market sell-off and income-sensitive government and mortgage bonds were negatively impacted by rising long-term interest rates.
  • Internationally, a stronger US Dollar resulted in currency losses and intensified investment losses around the world, especially in most emerging markets which have experienced double digit declines over the last year.
  • Some other concerns exist that could impact volatility further, including slowing GDP growth in Germany, EU, and Japan, the UK’s – uncertain Brexit plan, Italy’s – aggressive budget, Brazil’s and Mexico’s – new Presidents, and Turkey’s – Currency devaluation.
  • Hedge funds were challenged by the recent stock market sell-off which collectively had their worst month since the 2008 crisis. Some long / short strategies offset losses by betting against certain stocks. But, because some concentrated positions are in the most widely held companies (i.e. technology), losses were increased.
  • Private equity funds continue to provide a relatively attractive investment opportunity for institutional investors due to expanding investment opportunities, active ownership approach to creating value, and modestly lower valuation multiples vs. public comparables.

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The above was prepared for informational purposes only and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security/instrument or to participate in any trading strategy. Past performance is not indicative of future results.