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MCF Weekly Capital Market Review - November 18th, 2019

As we approach the end of US earnings season, earnings beats have outnumbered misses 2 to 1.[1] Large and mid-cap stock indices were positive for the week although small caps and emerging markets were down. Future market disruption could stem from several uncertainties, especially trade policy and the impeachment inquiry against Trump. However, the public does not appear convinced of a successful removal; the betting odds of Trump leaving office before the end of his first term sit at 21%, unmoved from the day after the impeachment inquiry was first announced.[2]

Germany had a positive surprise with Q3 GDP coming in at 0.1% v. the expected -0.1%.[3] Although growth for the quarter allows Germany to escape the technical definition of recession (two consecutive quarters of negative GDP growth), 0.1% growth provides little comfort. The news is reflective of other European states – stalling economic growth. This isn’t just a European phenomenon, but rather a global one. China industrial output, retail sales, and fixed asset investment growth all fell short of October expectations.[4] China began slowing down before the trade war escalation with the US, although it certainly provides a headwind against economic growth. India faces an even sharper slowdown, with the World Bank cutting 2019 GDP growth expectations from 7% back in April down to 5.9% last month.[5]

Investor optimism appears to be waning as we approach 2020. In the US, some point to the August yield curve inversion as setting an expiration date on the current expansion. Some point to the unprecedented age of it, over 10 years and running. There are also several disruptors, from growing worldwide populism to protests. However, there are some reasons for optimism. Monetary policy worldwide has been mostly supportive of continuing economic expansion. Fundamental readings in the US, especially in labor, consumer spending, and confidence, remain strong despite weakness in manufacturing and inflation.

Year-over-year CPI showed an increase of 1.8%, largely due to higher energy and healthcare prices. Year-over-year PPI reversed last month’s softness with October hitting 1.1% in a nod to increasing inflation. Powell’s speech confirmed market expectations by saying that current monetary policy remains appropriate, interpreted as no more rate changes are foreseen (and markets agree through 2020[6]). Retail sales were positive, hitting upper-end consensus estimates.

This week will feature releases on existing home sales and housing starts, Fed minutes from last month, business outlook survey, and consumer sentiment. 

INDEX RETURNS

[6] https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by MCF), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from MCF.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  MCF is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.   A copy of the MCF’s current written disclosure statement discussing our advisory services and fees is available upon request. If you are an MCF client, please remember to contact MCF, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. Please click here to review our full disclosure.

REFLECTED INDICES

S&P Composite 1500® Index combines three leading indices, the S&P 500®, the S&P MidCap 400®, and the S&P SmallCap 600® to cover approximately 90% of the US market capitalization. It is designed for investors seeking to replicate the performance of the US equity market or benchmark against a representative universe of tradable stocks. Investors cannot invest in an index.

MSCI ACWI ex USA Index captures large and mid-cap representation across 22 of 23 Developed Markets (DM) countries (excluding the US) and 23 Emerging Markets (EM) countries. With 1,859 constituents, the index covers approximately 85% of the global equity opportunity set outside the US. Investors cannot invest in an index.

Bloomberg Barclays Global Aggregate ex-USD Index is a measure of global investment grade debt from 24 local currency markets. This multi- currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. Investors cannot invest in an index.

Bloomberg Barclays High Yield Corporate Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded. Investors cannot invest in an index.

S&P GSCI is a composite index of commodity sector returns which represents a broadly diversified, unleveraged, long-only position in commodity futures. The S&P GSCI is intended to provide exposure to broad-based commodities. Investors cannot invest in an index.

Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed- rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass- through), ABS and CMBS (agency and non-agency). Provided the necessary inclusion rules are met, US Aggregate eligible securities also contribute to the multi-currency Global Aggregate Index and the US universal Index, which includes high yield and emerging markets debt. The US Aggregate Index was created in 1986 with history backfilled to January 1, 1976. Investors cannot invest in an index.

Bloomberg Barclays 1-10 Year US Government Inflation-Linked Bond Index tracks the 1-10-year inflation protected sector of the United States Treasury market. Investors cannot invest in an index.

Bloomberg Barclays US Treasury 1-3 Year Index measures the performance of public obligations of the US Treasury with maturities of 1-3 years, including securities roll up to the US Aggregate, US Universal, and Global Aggregate Indices. Investors cannot invest in an index.

Bloomberg Barclays US Treasury Bellwethers 3 Month Index is an unmanaged index representing the on-the-run (most recently auctioned) US Treasury bill with 3 months’ maturity. Investors cannot invest in an index.