Week in Review

Week in Review: November 12, 2018


U.S. equities were able to recover some of the losses from the October pullback after a midweek rally, despite giving back a portion of the gains on Thursday and Friday. The S&P 500 closed the week up 2.2%, while the NASDAQ Composite inched 0.7% higher. The results of the midterm elections, which confirmed that Democrats would take the House of Representatives and that Republicans would keep control of the Senate, helped equities surge as market participants welcomed the new balance of legislative power. Gridlock is seen as a market positive due to the lower probability of political uncertainty, as the prospect of a divided U.S. Congress for the next two years is likely to see no substantial legislative changes passed over. Additionally, the market friendly tax cuts and regulatory rollbacks established during President Trump’s administration will continue in place, allowing investors to shift their focus on fundamentals such as global economic growth, corporate profits, interest rates and global trade.

The midweek rally in U.S. equities came to a halt later in the week, after the U.S. Federal Reserve (the Fed) suggested it will continue raising interest rates progressively in response to the strong economy and rising inflationary signals. Low rates have helped spur economic growth and have been a strong driver of market performance in recent years, and the prospect of a higher interest rate environment could make equities less attractive investments. In addition, market sentiment dampened as the combination of slowing economic growth and higher funding costs could also reduce future corporate profits. On Friday, the Labor Department reported that wholesale prices increased in October at the fastest pace in six years (see Figure 1), raising fears of higher costs being passed to the consumer, as companies may have to increase prices to offset the recent growth of input and labor costs.

Emerging market equities closed the week lower, as the MSCI EM index dropped 2% from last week. Emerging market equities retreated after the Federal Reserve indicated it will continue raising interest rates, sending the U.S. dollar higher. News of cooling economic data in China added to the losses. Fears about a no-deal Brexit and growing tensions in Europe over Italy’s budget further helped drive a rally in the U.S. dollar.

On the fixed income front, U.S. Treasuries rallied as investor risk appetite dimmed amid the Fed’s hints of further interest rate hikes.  On Friday, U.S. Treasury yields fell with short-dated yields retreating from the highest levels in a decade, as investors fled to safe-haven assets as equity markets cooled.  The midterm elections are bound to give a boost to municipal bonds, as American voters approved a robust number of bond proposals which will increase the supply of new debt issues, which are likely to boost infrastructure spending and productivity. The switch in control of the House of Representatives is also likely to lower the probability for new tax cuts being passed, putting the value of tax-exempt securities on firmer ground.

Figure 1: U.S. Producer Price Index – Monthly Percentage Change

Producer Price Index

(Source: U.S. Department of Labor)

Market Returns (USD)





Global Equities

MSCI All Country World

1.0% -5.6% -1.9% 1.1%

S&P 500

2.2% -4.4% 5.7% 9.7%

Dow Jones Industrial Average

3.0% -1.5% 7.2% 13.3%


0.7% -7.8% 8.3% 10.9%

Russell 2000

0.1% -8.6% 1.9% 6.4%


0.2% -6.6% -8.0% -5.6%

MSCI Emerging Markets

-2.0% -6.8% -13.9% -11.8%

Fixed Income

ICE BofAML Municipals 1-10 Year A-AAA 

0.2% -0.3% -0.2% -0.7%

Bloomberg Barclays Intermediate Government/Credit

0.1% -0.2% -1.0% -1.2%

Bloomberg Barclays High Yield Bond

0.1% -1.3% 1.2% 2.1%

JPMorgan GBI Emerging Markets Global Diversified

-0.1% -0.6% -8.7% -5.1%

Market Levels


Week Ago

Year End

Year Ago

S&P 500

2781.01 2723.06 2673.61 2584.62

Dow Jones Industrial Average

25989.3 25270.83 24719.22 23461.94

10-Year U.S. Treasury Yield (Constant Maturity)

3.19% 3.22% 2.40% 2.33%

Gold ($/oz)

$1,209.65 $1,232.89 $1,302.80 $1,285.07

Crude Oil ($/barrel)

$60.19 $63.14 $58.07 $55.45

U.S. Dollar / Euro ($/)

1.13 1.14 1.20 1.16

U.S Dollar / British Pound ($/£)

1.30 1.30 1.35 1.31

Japanese Yen / U.S. Dollar (¥/$)

113.83 113.20 112.69 113.47
What's Important

U.S. equities rallied midweek after the midterm elections produced a divided Congress, relieving market uncertainty around the elections and allowing investors to shift their attention back to fundamentals

Signs of further rate hikes by the Fed and weaker Chinese economic data weighed on international equities as investors shunned riskier assets