November 2019 Market Update

November 2019 Market Update: Best Bull Market, Time to Give Thanks

November Market Highlights:

Once again we’re talking about equities on the rise with the S&P 500 posting one of the best 1-month returns of the year in November up 3.6%. New highs across many U.S. market indices, sectors, and exchanges were being hit on a weekly basis as good news and a lack of bad news gave the markets more room to move. What good news? The upward revision of 3Q 2019 GDP from 1.9% to 2.1%, continued strong U.S. consumer spending which accounts for about 2/3 of all U.S. economic activity, and positive news flow on U.S.-China trade resolution, to name a few. Lack of bad news also helped propel the markets.

International markets were more muted in November versus the U.S., and these regions are again playing second fiddle to American market momentum. One-month growth for the international developed countries, tracked by the MSCI EAFE, was a positive 1.1%. Emerging market countries captured in the MSCI EM Index were just slightly negative during the month. These return levels feel warranted, in our view, given the following:

The U.K. is grappling with Brexit and U.K. elections have kept a lid on that market until we have a PM (new or old) in place mid-December
Germany, long the powerful engine of European growth, continues to report economic deceleration
Trade tensions between the U.S./China and also U.S./EU, France in particular

Best Bull Market Ever:

November brought us to new highs culminating in the best bull market ever providing an amazing 470%+ return for the S&P 500. See the chart below showing a history of U.S. bull markets from 1949 to the present. In addition, this bull market is no garden variety given its amazing run for 10+ years versus the average bull market of 5 years. The level of return is also impressive considering the next best bull run was during the post-WWII boom.

Economic Picture

In general, the leading economic indicators which tell us how the U.S. economy is likely to do the future are still positive, but weakening. While the service sector and the consumer are on solid footing, all the uncertainty around U.S.-China tariffs has definitely affected business sentiment, long-term capital spending/investment, and thus the industrial/manufacturing sector. All in, the latest indicators do not suggest an economic downturn in the future, but a continued muted growth profile.

Saying Thanks and Taking Profits

While all of us were giving thanks over the holidays to family and friends, we were also saying thank you to this amazing market run and locking in gains where we deemed appropriate. Obviously taking profits after such a strong market run is the right thing to do from an investment stand-point, but does produce a tax liability in the form of capital gains. We view this as a good problem to have and remind our readers that in times of robust returns, we will also have some realized gains.

Next Month: SCA’s 2020 Outlook & 2019 in Review

We will devote much more time in next month’s Perspectives to discuss our 2020 outlook and the year 2019 in review. We look forward to sharing more thoughts in the future. As a preview, we are not changing course. We think in general, equities will have a better year than fixed income and the U.S. economy has enough growth to avoid a recession. However, we are pretty confident we will not see as robust a bond and equity market in 2020 as we did in 2019 which is why we titled this month’s market write-up “Time to Give Thanks.” We believe next year will be more volatile given the great run of 2019 and all the uncertainties that a presidential election year can bring. We think it’s prudent to take some profits in equities with above average returns and rebalance diversified portfolios to protect them during volatile market conditions.

As always, your Sandy Cove team is available to answer any questions about the markets or your portfolio.

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