November 2016 Market Insight

With the strong appetite for US stocks other assets classes sold off. Core US bonds declined 2.37% per the Barclays US Aggregate Bond Index. International stocks, per the MSCI World ex US Index, were down 1.60%. The US dollar trended noticeably higher versus all other currencies as well.

We certainly favor a rising US market but there are some things that give us pause. First is the extended valuation on US stocks. Current prices/per earnings of US corporations have been riding very high for many months. If earnings begin to grow substantially we think the prices can be maintained. However, rising earnings have not been the trend as of late. Perhaps traders are anticipating this to change with a change of president.

Some things to watch as we come to the end of the year:

1. Oil prices – OPEC just announced they are going to cut production. What will more expensive oil do for the economy? Will this help or hurt growth potential?

2. Europe – Will the European Central Bank continue its quantitative-easing program which ends in March? It will probably continue in some format, which may help European stocks.

3. Italy – A referendum on December 4th will reveal how the government will be structured there in the future. A “Yes” vote will likely strengthen the Eurozone and a “No” vote may be the first step in an Italy-exploring autonomy from the Eurozone.

4. Interest Rates – The Federal Reserve meets on December 14th for the final time in 2016. We’ll see if there will be another 0.25% rate increase. Most indicators expect this is the case. We think it’s likely given the optimism in the economy as 2016 comes to a close.

IndexNOV YTD
S&P 500 (US large stocks)3.709.79
Russell 2000 (US small stocks)11.1518.00
MSCI World Ex US (international stocks)-1.60-0.50
Barclays US Aggregate Bonds-2.372.50