Key Market/Economic Observations

United States
With Possible Trade Détente in Sight, U.S. Markets Forge Path Higher

Growing anticipation of a partial trade deal between the United States and China, better-than-expected third-quarter earnings results, and fading recessionary fears helped boost investor sentiment and pull the S&P 500® to another all-time high over the month. Despite the “Phase 1” trade agreement between the United States and China proving difficult to get across the finish line, we remain optimistic a détente will be reached. Treasury yields climbed modestly during a volatile month for interest rates, while credit spreads in investment grade and high yield remain well behaved, supporting easier overall financial conditions for businesses. Additionally, in our view, the -1.5% S&P 500 third-quarter blended earnings growth rate does not tell the whole story. Overall, earnings results came in well ahead of consensus estimates, and a closer look shows there are reasons to be positive about the earnings outlook as investors begin to shift their focus to 2020.

International Developed Markets
Green Shoots Starting to Peek Through as Macro Headwinds Subside

Investor confidence and market performance in major developed economies have improved in recent months, in our view, thanks to easing trade tensions, more accommodative monetary policy, and stabilizing economic fundamentals. Survey data indicate improving economic expectations in the United States, Japan, and especially Germany, where confidence jumped to a six-month high. In Germany, business expectations, purchasing manager index, and manufacturing production expectations all moved higher during the month. While numerous geopolitical tensions remain, the near-term global growth outlook appears to be brightening modestly, and the green shoots in both survey and hard data suggest a global recession is not imminent. Ironically, since the European Central Bank lowered policy rates to -0.5% and resumed its asset purchase program in September, the quantity of global negative yielding debt has decreased by $3 trillion, with global recession fears easing and interest rates continuing to stabilize in November.

Emerging Markets
Geopolitical Issues in Latin America Overshadowed by Robust Equity Capital Market Activity

The MSCI Emerging Markets (EM) Index is shaping up for a third consecutive month of positive performance, supported by a strong earnings season and a rebound in forward growth estimates. While the index is delivering positive gains for the month, EM Latin America is down over 4%, having its second worst month of the year, plagued by various country-specific geopolitical issues. That is in striking contrast to both EM Asia and EM Europe, Middle East, Africa, with two high-profile initial public offerings in the works from Alibaba Group Holdings Ltd. and Saudi Arabian Oil Co. Additionally, the People’s Bank of China fine-tuned its policy rate by lowering it 5 basis points and telegraphed the potential for additional cuts, if necessary, amid a slowdown in economic activity and the ongoing trade dispute with the United States. We would view a stabilization and/or rebound in Chinese economic growth in 2020 as a welcome development for the overall global growth backdrop.

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