Monthly Economic Update November 2011
The month of November was highly eventful from both macroeconomic and policy perspectives. The period contained a number of interesting outcomes, many of which were polar opposites of initial expectations. The call for a Greek bailout referendum was retracted within days. The Congressional Supercommittee, tasked to identify $1.2 trillion in deficit cuts, delivered zero. Emerging markets, until recently focused on fighting inflation, almost universally reversed course to stimulate economic growth. Initial great hopes of dramatically increasing the size of the European bailout fund (the EFSF) were dashed by month-end. Eurozone bond issuance, previously a somewhat unlikely alternative, is now the front runner of policy options for the eurozone. The crisis, originally contained to peripheral European nations, hit the core of Europe. Italian and Spanish yields spiked to unsustainable levels and French rates rose to unprecedented spreads over comparable German debt. Germany itself, the bastion of European economic strength and stability, had an unnerving bond auction failure resulting in its own yields rising above those of England! Lastly, in what felt like an exclamation point to a crazy, unpredictable month, major central banks announced decisive coordinated action to help ease financial strains – markets surged on this news. Evaluated through the lens of these events, it is little wonder why the capital markets were erratic, volatile, unpredictable, and, well, schizophrenic.
Closer to home, U.S. macroeconomic developments were largely positive. Employment improved marginally, trade flows have trended favorably in recent months, consumer sentiment picked up, manufacturing continues to grow, inflationary pressures eased a tad, and retail sales have been solid. On that note, Black Friday and Cyber Monday sales were estimated to have risen by 6.6% and 18%, respectively.
Novemberâ€™s Economic Releases
The S&P 500 lost 0.2% for the month and is now up 1.1% for the year. Internationally, the MSCI All Country World index (excluding U.S.) dropped 5.2% in November with emerging markets notably weak. Year-to-date, international equity markets have lost 13.3%. Dollar movement this year has helped developed market returns modestly while hindering emerging market returns materially.
In the fixed income market, the Barclays U.S. Aggregate index was down 0.1% for the month and the 10-year U.S. Treasury bond ended with a yield of 2.08%, little changed for the month and down 122 bps for the year. Inflation expectations have gradually trended down this year and high yield debt spreads widened in November to give back half of Octoberâ€™s 134 bps rally. Year-to-date, the Barclays U.S. Aggregate is up 6.7%. Commodities dropped 2.2% this month and are now down 9.9% year-to-date while publicly traded REITs lost 3.7% to bring their gain this year to only 1.9%.
This market commentary was produced by Summit Financial Resources, Inc., 4 Campus Drive, Parsippany, NJ 07054. Tel: 973-285-3600, Fax: 973-285-3666. Source of performance: MorningstarÂ®. Indices are unmanaged and cannot be invested into directly. The investment and market data contained in this newsletter is not an offer to sell or purchase any security or commodity. Standard & Poorâ€™s 500 Index (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The MSCI EAFE and Emerging Markets Indexes were created by Morgan Stanley Capital International (MSCI) and designed to measure equity market performance in global developed and emerging markets, respectively. The Barclays Aggregate Bond Index is a market capitalization-weighted index comprised of government securities, mortgagebacked securities, asset-backed securities, corporate securities, and a small number of foreign bonds traded in the U.S. It is used to represent the universe of bonds in the domestic market. REITs, Real Estate Investment Trusts, are securities that invest in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, however, have liquidity constraints. Past performance does not guarantee future results. Information throughout this Newsletter, whether stock quotes, charts, articles, or any other statement or statements regarding markets or other financial information, are obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither we nor our information providers shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission thereof to the reader. To unsubscribe from this investment newsletter please reply to this email with â€œunsubscribeâ€ in the subject. Opinions expressed are subject to change without notice and are not intended as investment advice or a guarantee of future performance. Consult your financial professional before making any investment decision. with â€œunsubscribeâ€ in the subject. Opinions expressed are subject to change without notice and are not intended as investment advice or a guarantee of future performance. Consult your financial professional before making any investment decision.