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Perspectives from Above the Noise -- Week of December 3rd, 2018

| December 03, 2018
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Best Week Since Late 2011

November 26 - 30, 2018 Recap

November Salvages a Gain. U.S. stocks advanced last week, with the S&P 500 posting its strongest weekly gain since December 2011, following dovish comments from the Federal Reserve and optimism ahead of a key Saturday trade meeting between President Trump and China’s President Xi Jinping. The advance erased earlier November losses to end the month in the black (+2.04%).

Weekly Performance. For the week, the S&P 500 advanced 4.91%, the Dow Industrials rallied 5.16% and the tech-heavy Nasdaq Composite surged 5.66%.

Chicago Business Activity Jumps. The Chicago MNI Business Activity Index surprised higher in November, unexpectedly rising to 66.4 after falling to 58.4 the month prior, its first increase in four months. Economists’ had forecast a decline to 58.0.

Cyclical Stocks Gain the Most. All 11 major sector groups posted solid gains last week, led by Consumer Discretionary (+6.55%), Technology (+6.14%) and Healthcare (+6.01%). Materials (+2.56%), Utilities (+2.79%) and Real Estate (+2.79%) rose the least.

Treasury Bonds Rise with Stocks. Treasurys rallied last week, sending the yield on benchmark 10-year notes down 5.2 basis points to end the month at 2.99%. The U.S. Dollar Index strengthened by 0.37% to finish the week at 97.272. Oil prices briefly fell below $50/barrel on Friday, trimming a weekly gain to 1.01%. Despite the gain, U.S. oil prices closed out November down 33% from its 2018 high of $76.10 on October 3. Strong global production is contributing to a world-wide oil glut.

What We’re Reading

Full G-20 Roundup

Brexit Parliament Vote Looms

Brexit BBC Primer

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 Week’s Economic Calendar

Monday, December 3: Markit & ISM Manufacturing Index, Construction Spending;

Tuesday, December 4: Motor Vehicle Sales;

Wednesday, December 5: ADP Private Sector Jobs, Worker Productivity & Costs, Markit & ISM Services Activity, Fed Beige Book;

Thursday, December 6: Jobless Claims, Trade Deficit, Factory Orders;

Friday, December 7: Nonfarm Payrolls, Wholesale Inventories, Consumer Credit.

 Market Watch
Stocks1-WkMTD3-MonthYTD1-Year
Dow Jones5.16%1.68%-1.64%3.31%5.22%
S&P 5004.91%2.04%-4.40%5.11%6.28%
NASDAQ5.66%0.49%-9.36%7.24%7.76%
Russell 30004.69%2.00%-5.35%4.48%5.53%
MSCI EAFE0.97%-0.13%-7.28%-9.39%-7.94%
MSCI Emerging Markets2.65%4.12%-5.45%-12.24%-9.10%
Bonds1-WeekMTD3-MonthYTD1-Year
Barclays Agg Bond0.13%0.60%-0.84%-1.79%-1.34%
Barclays Municipal0.54%1.11%-0.17%0.08%1.13%
Barclays US Corp High Yield0.44%-0.86%-1.90%0.06%0.36%
Commodities1-WeekMTD3-MonthYTD1-Year
Bloomberg Commodity1.37%-0.56%-0.84%-4.68%-1.84%
S&P GSCI Crude Oil1.01%-22.02%-27.03%-15.71%-11.28%
S&P GSCI Gold-0.25%0.91%1.60%-6.36%-3.97%
Source: Morningstar
Chart of the Week
We Anticipate Strong Holiday Spending
View larger image »

The recent volatility in equity markets has not rattled consumers up to this point. Consumer confidence remains high at a level of 135.7 in November according to the Conference Board. That is slightly below the 18-year high of 137.9 in October, but still highly elevated compared to history. Consumer activity has been strong in 2018, with strong tailwinds from tax reform, a strong economy, and a healthy labor market. The sharp drop in oil prices is bringing down the price of gasoline and that is helping keep confidence at a high level. Based on the recent strength in consumer activity and elevated consumer confidence, we anticipate a strong holiday shopping season, which in turn may offer support to the retail and consumer discretionary sectors. The early numbers are encouraging - Cyber Monday sales climbed to a record breaking $7.9 billion last week, more than 19% higher than 2017.

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The Bloomberg Barclays US Aggregate Bond Index, which was originally called the Lehman 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 debt securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency) debt securities that are rated at least Baa3 by Moody’s and BBB- by S&P. Taxable municipals, including Build America bonds and a small amount of foreign bonds traded in U.S. markets are also included. Eligible bonds must have at least one year until final maturity, but in practice the index holdings has a fluctuating average life of around 8.25 years. This total return index, created in 1986 with history backfilled to January 1, 1976, is unhedged and rebalances monthly.

The Bloomberg Barclays US Corporate High Yield Index measures the USD-denominated, non-investment grade, fixed-rate, taxable 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, excluding emerging market debt. Payment-in-kind and bonds with predetermined step-up coupon provisions are also included. Eligible securities must have at least one year until final maturity, but in practice the index holdings has a fluctuating average life of around 6.3 years. This total return unhedged index was created in 1986, with history backfilled to July 1, 1983 and rebalances monthly.

The Bloomberg Barclays US Municipal Bond Index covers the USD-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds. Many of the subindicies of the Municipal Index have historical data to January 1980. In addition, several subindicies based on maturity and revenue source have been created, some with inception dates after January 1980, but no later than July 1, 1993. Eligible securities must be rated investment grade (Baa3/BBB- or higher) by Moody’s and S&P and have at least one year until final maturity, but in practice the index holdings has a fluctuating average life of around 12.8 years. This total return index is unhedged and rebalances monthly.

The Bloomberg Commodity Index is a broadly diversified index that measures 22 exchange-traded futures on physical commodities in five groups (energy, agriculture, industrial metals, precious metals, and livestock), which are weighted to account for economic significance and market liquidity. No single commodity can comprise less than 2% or more than 15% of the index; and no group can represent more than 33% of the index. However, between rebalancings, group weightings may fluctuate to levels outside the limits. The index rebalances annually, weighted 2/3 by trading volume and 1/3 by world production.

The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Introduced in 1993, the VIX Index has been considered by many to be the world's premier barometer of investor sentiment and market volatility.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.

The MSCI All-Country World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The SMCI ACWI consists of 46 country indexes comprising 23 developed and 23 emerging market country indexes. The developed country indexes include: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the Uninted States. The emerging market country indexes included are: Brazil, Chile, China, Colombia, Czech Republic, Eygpt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.

The MSCI EAFE Index is designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada. The Index is market-capitalization weighted.

The MSCI Emerging Markets Index is designed to measure equity market performance in global emerging markets. It is a float-adjusted market capitalization index.

The MSCI Europe Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe.

The MSCI Pacific Index captures large and mid-cap representation across five Developed Markets (DM) countries in the Pacific region. With 470 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.

The NASDAQ Composite Index includes all domestic and international based common type stocks listed on The NASDAQ Stock Market. The NASDAQ Composite Index is a broad based index.

The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe and is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.

The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.

The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe and is a subset of the Russell 1000 Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership. The Russell Midcap represents approximately 31% of the total market capitalization of the Russell 1000 companies.

The S&P 500 is an index of 500 stocks chosen for market size, liquidity and industry grouping (among other factors) designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.

The S&P GSCI Crude Oil Indexis a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark for investment performance in the crude oil market.

The S&P GSCI Gold Index a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark tracking the COMEX gold futures market.

West Texas Intermediate (WTI) is a crude oil stream produced in Texas and southern Oklahoma which serves as a reference or "marker" for pricing a number of other crude streams. WTI is the underlying commodity of the New York Mercantile Exchange's oil futures contracts.

The U.S. Dollar Index is a weighted geometric mean that provides a value measure of the United States dollar relative to a basket of major foreign currencies. The index, often carrying a USDX or DXY moniker, started in March 1973, beginning with a value of the U.S. Dollar Index at 100.000. It has since reached a February 1985 high of 164.720, and has been as low as 70.698 in March 2008.

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