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Monday, December 3, 2018

November 2018 - Monthly Market Commentary

November was a mixed month for global risk assets. Developed and emerging market equities mostly rebounded, credit spreads widened, the USD was little changed, the oil complex sold off sharply, natural gas spiked higher, and the US interest rate curve flattened. The Federal Reserve kept rates unchanged at its November meeting; minutes from the meeting pointed to a rate increase in December, but greater uncertainty about the future pace of quarterly rate hikes. Comments by Chairman Powell late in the month regarding rates being “just below” neutral sparked a sharp rally in risk assets. The US job report showed that 250,000 non-farm jobs were added in October (the 97th consecutive month of job creation), the unemployment rate held at 3.7% (a 49 year low), the labor force participation rate increased to 62.9%, and average hourly earnings rose 3.1% from a year earlier.

Notable corporate transactions announced in November included the $3.2 billion acquisition of Finisar by II-VI, the $8 billion purchase of Qualtrics by SAP, the $5.5 billion acquisition of Athenahealth by Veritas Capital and Evergreen Coast Capital, the $1.4 billion purchase of Cylance by BlackBerry, the $4.2 billion acquisition of BTG by Boston Scientific, the $700 million sale of GameStop’s mobile unit to Prime Communications, the $1 billion purchase of ITG by Virtu Financial, the $1.2 billion acquisition of Kraft’s Canadian natural cheese business by Parmalat, the $7.4 billion purchase of Arris by CommScope, the $594 million acquisition of Bojangles by Durational Capital and The Jordan Company, the $1.9 billion purchase of ConvergeOne by CVC, ResMed’s $750 million purchase of MatrixCare, Vista Equity’s $1.9 billion acquisition of Apptio, Sazerac’s $550 million purchase of 19 alcohol brands from Diageo, Pan American Silver’s $1 billion acquisition of Tahoe Resources, the $1.2 billion purchase of Spectrum Brands’ auto care business by Energizer, the $3.2 billion purchase of DJO Global by Colfax, Cimarex’s $1.6 billion acquisition of Resolute Energy, Johnson Controls’ sale of its power solutions business to Brookfield, Newell Brand’s $2.5 billion sale of Pure Fishing to Sycamore Partners and Jostens to Platinum Equity, the $950 million sale of Veracode to Thoma Bravo, the $655 million acquisition of Sonneborn by HollyFrontier, and the $875 million purchase of PlanGrid by Autodesk.

Developed market equities rose in November (see page 8), with the biggest gains in Hong Kong (+7.2%), the US (S&P 500, +2%), and Spain (+1.9%), and the largest losses in Australia (-2.3%), Germany (-2%), and France (-1.7%). US large caps outperformed small caps, with the Russell 1000 up 2% and the Russell 2000 up 1.6% (see page 3). Healthcare (+7.1%), Real Estate (+5.6%), and Materials (+4%) were the best performing sectors in November; IT (-1.9%), Energy (-1.6%), and Communication Services (-0.7%) were the worst performing sectors (see page 2). Large cap value (+3%) outperformed large cap growth (+1.1%) in November (see page 3). Emerging market equities were mostly higher in November (see page 9), with the largest gains in China (+7.2%), Argentina (+5.6%), and Indonesia (+5.6%), and the largest losses in Mexico (-4.4%), Taiwan (-1.2%), and Thailand (-1.1%).

In currencies, the USD Index was little changes (+0.1%) in November (see page 10). The New Zealand Dollar (+5.4%), Australian Dollar (+3.3%), and Swiss Franc (+1%) had the largest gain against the USD, while the Norwegian Krone (-1.9%), Canadian Dollar (-1%), and Japanese Yen (-0.5%) had the largest losses. Emerging market currencies were mixed against the USD, with the largest gains in the Turkish Lira (+7.1%), South African Rand (+6.5%), and Indian Rupee (+6.1%), and the largest losses in the Brazilian Real (-3.7%), Russian Ruble (-1.8%), and Mexican Peso (-0.3%).

The US interest rate curve flattened in November (see page 12). 10 year rates closed the month at 2.99%, down from 3.14% at October month end. US investment grade and high yield spreads widened in November (see page 13).

In commodities, the GSCI index was down 11.3% in November (see page 11), with losses in Energy (-17.9%), and gains in Industrial Metals (+2%), Livestock (+1.5%), Agriculture (+0.7%) and Precious Metals (+0.4%). Within individual commodities, Natural Gas (+41.1%), Palladium (+7.8%), and Lean Hogs (+6.7%) saw the biggest gains, while Crude Oil (-22.1%), Brent Crude (-20.9%), and Gasoline (-19.3%) saw the biggest losses. Gold was up 0.6% for the month.

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