Weekly Market Commentary, November 27, 2018

November 27, 2018  | By Robare & Jones

The Markets

Global stocks continued to decline as economic weakness and the possibility of further rate increases by the Federal Reserve worried investors. After rallying in late October and early November, global stocks were trading near the levels reached during the October decline.

Last week, the S&P 500 dropped 3.8 percent. Global stock markets joined in the decline, sending the MSCI ACWI 2.7 percent lower. The Bloomberg BarCap Aggregate Bond Index was basically unchanged as gains from government-backed bonds were cancelled out by declines in corporate debt. Oil prices dropped sharply again as a host of negative news pressured prices lower.

 

Data as of 11/23/2018 1-week YTD 1-Year 3-Year 5-Year 10-Year
Standard & Poor's 500 (Domestic Stocks) -3.8% -1.5% 1.2% 8.1% 7.9% 12.0%
Dow Jones Global ex-U.S. -1.4 -13.6 -12.1 2.3 -0.4 5.7
10-year Treasury Note (Yield Only) 3.1 NA 2.3 2.3 2.7 3.3
Gold (per ounce) 0.1 -5.6 -5.2 4.6 -0.3 4.1
Bloomberg Commodity Index -2.9 -7.6 -6.3 0.0 -8.0 -4.1
DJ Equity All REIT Total Return Index -1.2 1.5 0.5 6.8 9.7 15.3

S&P 500, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

Download Market Data Table

 

Oil

Oil has taken a massive hit since October with prices being slashed by a third. Last Friday, oil took another hit with a 7.7 percent drop down to $50.42 a barrel, the lowest level in more than a year. Oil’s decline reflects some of the same factors affecting stocks as well as some factors to oil. Here is a summary of why oil has declined so rapidly:

  • Factors Affecting Oil and Stocks
    • Weakening Economic Growth – Oil demand is closely tied to global growth expectations, and these have dropped recently as key economic data has been weaker than expected. This has lowered expected demand for oil in the coming year and raised concerns about how quickly revenue and earnings will grow for the stock market.
    • Dollar Strength – Oil is priced in dollars. As the dollar has increased against foreign currencies, oil’s decline has appeared even larger. An increasing dollar also lowers the value of foreign earnings and puts pressure on some global markets with large dollar debts.
  • Factors Specific to Oil
    • Supply Increasing – U.S. oil output is growing so rapidly, it has become the world’s number one producer. Technological changes to the drilling process, such as fracking, have lowered the cost to drill and increased the speed at which new supply can be added or dropped. Oil inventories continue to rise, suggesting supply and demand are imbalanced.
    • Policy Issues – The Trump administration allowed major purchasers of Iranian oil additional time to wean themselves from their supplier. The waivers were larger and broader than expected and other producers had already ramped up production. The combination produced a short-term boost in supply.
    • Macro Trends – The inflow of new automobile users and higher demand from less-developed countries are being offset by greater energy efficiency and a move away from hydrocarbons in developed markets.

Fun Story

Chick-fil-A honors World War II Veteran with free food for life
In the season of giving, an Ohio Chick-fil-A decided to do something special for a local war veteran. Ernie, a 92-year-old veteran, had been going to Chick-fil-A every weekday and ordering the same meal for about a year. The workers grew fond of Ernie as he always asked about their day, and they would often join him at his table. Ernie was honored by getting free Chick-fil-A for life at their store.