Weekly Recap for the week ending 11/30/18

-Darren Leavitt, CFA

The market had a fantastic week.  Investors took a hopeful stance that something constructive would come out of the G-20 meetings this weekend and rhetoric out of Washington seemed to suggest the possibility of compromise.  Perhaps more influential was the dovish tone that was sent by Fed Chairman Jerome Powell.  Markets had one of the best days of the year after the Chairman said that current interest rates are “just below” the neutral rate.  A nice start to the holiday shopping season also helped to lift the consumer discretionary sector to a 6.4% gain for the week.  The S&P 500 gained 4.71%, the Dow increased 5.16%, the NASDAQ lead, gaining 5.64% and the Russell 2000 lagged, increasing 3% for the week.  International stocks also did quite well last week.  Emerging markets increased 3.37% while International developed markets added 1.6%.  The Treasury curve flattened a bit last week with the 2 year note yield closing down 1 basis point at 2.81%.  The Ten-year yield lost 4 basis points and closed the week at 3.01%.  We had a couple of changes to our Tactical Growth strategy which induced changes in 4 of our tactical models.  We sold our position in a broad-based commodity ETF (DBC) and reduced some exposure in our 7-10 year duration Treasuries (IEF).  The proceeds from the sales were placed in an opening position in gold (GLD) and to a slight increase in our S&P 500 (SPY) position.  As always, please let us know if you have any questions.

Investors awaited any news on trade in front of the G-20 meeting this weekend.  Cautiously optimistic tones throughout the week seemed to provide the market with some hope for a positive outcome.  As I write this note, it appears that the headliner meeting between the US and China produced a truce with both sides agreeing to halt any further tariffs for 90 days.  The result echoed a Wall Street Journal article printed late last week which cited unknown sources.  There is certainly some relief in the truce but obviously, the two sides have a lot of heavy lifting to do, and the uncertainty in trade will continue to be top of mind for many investors.

The “Fed-Put” that was ever present in the Bernanke and Yellen reigns looks more and more like it may become policy within the Powell reign as well.  What a difference a couple of months make, the markets certainly loved the dovish tone out of the chairman this week when he suggested that current interest rates are just below the neutral rate.  Over the last few weeks, the Fed Vice chair along with a few other Fed Governors have suggested the same thing which has called the Fed’s dot plots for 2019 into question.  While a December hike is most likely, currently assigned an 84% probability, there is a real sense that the Fed will materially change its rate outlook for 2019 to look more like the market’s forecast which has just over one more rate hike priced in.  For the time being the proverbial punch bowl will remain and this by itself may prove to provide the Santa Clause rally we have all come to expect.

Speaking of Santa Clause, a record Black Friday coupled with very strong Cyber Monday sales helped to propel consumer discretionary stocks.  Market sentiment concerning the consumer was also bolstered by the strong showing.  Amazon which is a strong beneficiary of both Black Friday and Cyber Monday increased 12.52% for the week.  Costco, Walmart, and Home Depot also had an impressive week.

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