Weekly Market Highlights

Equity Markets Take Fed December Signal in Stride

  • Last week’s FOMC minutes continued to suggest a December liftoff for the fed funds rate
  • In the U.S., investors will see plenty of economic releases in a holiday-shortened week

Last Week’s Highlights

  • U.S. Consumer Price Index: +0.2% in October month-over-month and +0.2% year-over-year (core CPI increased 0.2% month-over-month and 1.9% year-over-year).
  • NAHB Housing Market Index: -3 to 62 in November.
  • U.S. Housing Starts: -11.0% to SAAR of 1.06 million units in October.
  • U.S. Building Permits: +4.1% to SAAR of 1.15 million units in October.
  • Oil:  $41.90 ($1.16)
  • Gold:  $1,076.30 ($4.60)
  • U.S. 10-year Treasury:  2.25% (0.03%)
  • Dollar:  Euro--$1.06, Yen--122.80 (strengthened against Euro and Yen)
  • VIX:  15.47 (4.61)

What to Watch for

  • Monday 11/23: U.S. Existing Home Sales
  • Tuesday 11/24: U.S. 3Q 2015 GDP (second estimate)
  • Tuesday 11/24: Case-Shiller Home Prices
  • Tuesday 11/24: U.S. Consumer Confidence
  • Wednesday 11/25: U.S. Personal Income and Outlays
  • Wednesday 11/25: U.S. Durable Goods Orders
  • Wednesday 11/25: U.S. New Home Sales
  • Thursday 11/26: Happy Thanksgiving

The widely anticipated December Federal Open Market Committee meeting is just over 3 weeks away, but investors have been inundated with comments by Fed officials that suggest a rate hike will be delivered on December 16. The FOMC minutes from the October FOMC meeting appeared to make a similar case as several participants pushed against the idea of delaying the rate normalization process.

As we have commented upon previously, we believe economic fundamentals in the U.S. (particularly in relation to inflation and employment) warrant a rate hike. Substantial progress has been made in relation to job gains, the unemployment rate and more recently, wage growth. While inflation remains muted, last week’s U.S. consumer price index was slightly stronger-than-expected and provides support that inflation may be inflecting higher.

International developments have previously contributed to a more cautious U.S. monetary policy stance however ongoing stimulus announcements from the People’s Bank of China and another potential injection of quantitative easing by the European Central Bank (convenes December 3) may give the Fed confidence that the global backdrop is in the process of stabilizing.

Markets Rebound

The Fed is likely to be encouraged by the market’s response to their recent rhetoric—global equity markets registered robust gains with the S&P 500, MSCI EAFE and MSCI Emerging Markets indices increasing 3.3%, 2.5% and 2.7%, respectively, last week. Fixed income markets were relatively unfazed as U.S. investment grade fixed income, as represented by the Barclays U.S. aggregate index, posted a modest gain of 0.2%. Real estate investment trusts (REITs), which have historically displayed sensitivity to interest rate and Fed policy changes also performed admirably with returns of over 3% for U.S. and global REIT benchmarks.

Staying Constructive

Although financial markets remain dynamic and risks (geopolitical, growth, policy-related) are likely to linger, we believe the rebound by risk assets in the fourth quarter validates our view that the August/September volatility and pullback was a mid-cycle correction as opposed to portending something more ominous. Going forward, we anticipate a more stable growth backdrop in the U.S. and abroad as the positive effects of additional monetary stimulus, low interest rates and low commodity prices work their way through the global economy and thus we remain constructive on risk assets over an intermediate time horizon.

Statistics on the Current State of the Market

S&P 500 Index 3.3% 0.7% 3.4%
Russell 1000 Index 3.2% 0.6% 3.0%
Russell 1000 Growth Index 3.7% 0.7% 7.7%
Russell 1000 Value Index 2.8% 0.5% -1.6%
Russell Midcap Index 2.9% -0.2% -0.2%
Russell 2000 Index 2.5% 1.2% -1.3%
DJ Industrial Average Index 3.5% 1.2% 2.3%
NASDAQ-100 Index 4.1% 0.8% 10.6%
MSCI EAFE Index 2.5% -0.8% 1.7%
MSCI Emerging Markets Index 2.7% -0.5% -9.6%
Alerian MLP Index -1.5% -8.1% -30.1%
Cash & Fixed Income      
Citigroup 10-Year Treasury Index 0.2% -1.0% 0.7%
Barclays US Aggregate Index 0.2% -0.5% 0.7%
Barclays Municipal Bond Index 0.5% 0.1% 2.3%
BofA Merrill Lynch U.S. High Yield Index -0.5% -2.3% -2.1%
Real & Alternative Assets      
FTSE EPRA/NAREIT North America Index 3.6% -0.8% 0.1%
FTSE EPRA/NAREIT Global Index 3.4% -1.1% -0.5%
Bloomberg Commodity Index -1.2% -6.9% -21.9%
Gold (NYM $/ozt) Continuous Future -0.4% -5.7% -9.1%
Crude Oil (NYM $/bbl) Continuous Future 2.8% -10.1% -21.3%

Data Source: FactSet

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