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MCF Weekly Capital Market Review - November 26th, 2019

There was little news and little action the past week, with all broad equity indices slightly down as markets came off record highs the week before. Q3 earnings season still sits at 67% of earnings beats for US companies.[1] The VIX (measure of equity volatility) has calmed down to the range of it’s year-to-date lows, closing at 12.34.[2] The other traditional measure of uncertainty, gold, finished at $1,464/ounce on Friday, down from its $1,546 high in September.[3] This is all in spite the geo-political concerns over Brexit and trade wars, and economic concerns of slowing global growth.

Both sides in the US-China trade war appear content to crawl toward a deal. A partial deal, dubbed Phase One, was supposed to be signed this month, but so far has failed realization. Xi called for an agreement based on mutual respect and equality.[4] However, Trump said he will not agree to an “equal” deal because the US has suffered unfair trade treatment, giving China “$500 billion a year” for several years.[5] This has been a frequent complaint consistent with the public list of negotiating points (forced technology transfers, intellectual property theft, foreign ownership/licensing restrictions, etc.) and supported by US Trade Representative findings.[6] US trade negotiators have been invited to Beijing although a date is yet to be set. The next important date is December 15 when tariff rates will be raised to 15% on ~$150 billion of Chinese goods.

The Fed’s minutes reiterated the committee’s current policy outlook of neutral until a material reassessment of outlook. Core personal consumption expenditures (PCE) is the Fed’s preferred measure, which was 1.8% for the past year ending in August.[7] Despite an unemployment rate of 3.6%, a rate not seen since 1969,[8] the Fed remains concerned of missing its 2% inflation target. The Fed already cut rates 3 times this year – dubbed an “insurance” cut to get ahead of large negative movements that could occur from growing risks. Market participants expect little to no further moves through 2020.[9]

Housing starts show a housing market set to pick up, continuing strength from last quarter. Home sales were also strong. The Philadelphia business outlook survey has met consensus estimates 4 of the past 5 months. Consumer sentiment also beat November estimates.

This week will feature releases on new home sales, consumer confidence, GDP, and a speech from Fed chair Powell.

INDEX RETURNS

[9] 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.