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stock ticker over skylineU.S. stocks continued to charge ahead in November: domestic larger caps rose 3.1 percent (Vanguard 500 Index) and smaller caps gained 2.9 percent (iShares Russell 2000 ETF). Notably, the returns were broad based, with every sector returning 1 percent or more. This brings the year-to-date gain of larger-cap U.S. stocks to just over 20 percent. If December finishes in the black, it will be the first time that stocks will have had positive gains in every month of a calendar year (dating back to 1926).

November was headlined by Congress’s work on tax reform. Both the Senate and House have now passed their own versions of a tax plan. It is now up to the two to resolve the differences in their respective tax bills to get it over the finish line. Regardless of what the final tax bill looks like, and whether the two legislative branches can come to a compromise, it seems clear the stock market is already discounting some type of corporate tax cut. Should a bill not come to fruition, we would expect to see some market volatility.

Developed international stocks lagged their U.S. counterparts in November with a 0.9 percent gain (Vanguard FTSE Developed Markets ETF). European equities were essentially flat during the month (Vanguard FTSE Europe ETF). Investors in Europe were better off investing in currency-unhedged assets as the dollar weakened relative to the euro in November. However, developed international stocks and European stocks remain ahead of U.S. stocks for the year to date, up 24.4 percent and 25.1 percent, thanks to strong returns earlier in the year. Emerging-market stocks slipped 0.3 percent in November (Vanguard FTSE Emerging Markets ETF) but continue to hold onto their year-to-date leadership, up 26.8 percent for the year so far.

U.S. interest rates were unchanged in November (as measured by the 10-year Treasury yield). However, the Treasury curve continued to flatten and is at its flattest level in a decade. The spread between 10-year Treasurys and 2-year Treasurys is now around 60 basis points, which is roughly half the spread it was at the beginning of the year. However, it is still far from being an inverted yield curve, which is often a harbinger of a recession. U.S. core bonds lost 17 bps in November, but are still up 3 percent for the year to date (Vanguard Total Bond Market Index). U.S. high-yield bonds (BofA Merrill Lynch U.S. High-Yield Cash Pay Index) slipped 0.3 percent last month but are up over 7 percent for the year to date. Floating-rate loans (S&P/LSTA Leveraged Loan Index) were essentially flat in November but are also positive year to date (up 3.7 percent).

OJM Investment Team


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