Market Review November 2018

An Up and Down November

Stocks rode the rollercoaster of November, heading into the holiday season higher on the month. The Dow Jones closed November at 25,538, up about 1.7%, while the S&P 500 gained a similar 1.7% on the month. The healthcare sector was one of the biggest gainers on the month, rising 6.9%. This didn’t come without turmoil, as markets were down as low as 7.2% from the high of the month before rallying to end the month.

Historically, December has been good to the equities markets, with stocks performing well over the month in past years. Still, some analysts believe more volatility is on the way. “We do not have evidence that a meaningful cyclical low is in place, and the character of any rally attempts that do emerge will be watched closely,” Baird chief investment strategist Bruce Bittles contends.

Federal Reserve Happy with US Economy

In the face of steadily dropping equity prices and a slew of international diplomacy risks, the Federal Reserve remains confident with how the US economy is performing.

Fed Chairman Jerome Powell is confident in the stability of the economy moving forward. “The risks of destabilizing runs are far lower than the past. The institutions at the heart of the financial system are more resilient,” Powell noted in a statement.

After Powell’s endorsing statement stocks rose by 1.75%, with investors clearly happy about how the Fed’s stance bodes for the future economy.

Other Signs Point to Economic Weakness

While the Fed is pleased with how the economy is performing, other economic indicators are pointing to a negative future in the United States. Some analysts believe the 10+ years of growth the economy has experienced is about to come to an end. Former Chief Economist at the Commerce Department, Ellen Hughes-Cromwick, points out, “We’re in the 10th year of the expansion and there are some soft points. The auto sales cycle has peaked and the housing cycle also has peaked.” Consumer confidence is still high at the moment, but when asked about the future, consumers are less than confident about continued growth.

Report: Economic Impact of Climate Change Could be Huge

The Fourth National Climate Assessment report released by the US government brought a harrowing report of environmental degradation which could significantly impact the global economy. Negative economic issues found in the report include falling crop yields, degradation to key infrastructure, and decreased labor productivity, among others. Housing prices are likely to rise as the need for better building structures are needed, or certain parts of the country will become uninhabitable as a result of climate change.

Climate change is put on display as a major factor in potential economic losses. “With continued growth in emissions at historic rates, annual losses in some economic sectors are projected to reach hundreds of billions of dollars by the end of the century – more than the current gross domestic product (GDP) of many US states,” states the report.

President Trump has since denounced the report, claiming he disagrees with the findings and believes the United States is currently doing more than their fair share of adjustments to quell climate change. “As to whether or not it’s man-made and whether or not the effects that you’re talking about are there, I don’t see it,” Trump told the Washington Post.

Only time will tell the true economic impact of this phenomenon.

GM Closes Plants

One of the United State’s largest employers, General Motors, has been forced to lay-off thousands of employees as it closed four production facilities in the US, along with one in Canada. All told, 14,000 jobs were eliminated in the move.

The impact of these closures is expected to not only to directly affect employment, but has wider reaching implications for local economies. Two Youngstown State University professors, John Russo and Sherry Linkon, have expressed their concerns over these midwestern towns which are likely to be severely affected by the move. Russo and Linkon claim, “Businesses across the community suffer — not just suppliers or service providers who directly supported a closed plant, but also restaurants and bars and retailers of all kinds. Stores close, windows get broken, storefronts get boarded up, and downtowns empty out.”

Oil Stays Down

One bright spot in economic news on the month was the price of oil, which continued to be pushed lower across the globe. Crude oil was down 22% in November, ending the month at $50.93.

With price so low OPEC looks like it will cut its production for the upcoming year. One OPEC official noted, “According to the data we have, 1.3 million barrel a day cut would be efficient to balance the market.” Most of these cuts would have to come from Saudi Arabia, which ramped up production by about 1 million barrels per day to keep the oil market contained.

Still, many in the United States didn’t appreciate President Donald Trump’s backing of Saudi Arabia for lowering oil prices amidst the horrific killing of reporter Jamal Kashogi at the Saudi consulate in Turkey and wonder if he has gone too far in supporting the country just to maintain stable prices in the oil market.

Canadian Economy Slowing; Investors Pull Out of Saudi Market

Growth in the Canadian economy is growing at a slower rate than expected. Annualized economy growth in the country came in at 2.0% for the third quarter of the year, much lower than the 2.9% expected growth. This comes as consumers in Canada are investing less in housing and purchasing fewer automobiles. Household spending rose by 0.3% on the quarter, which was only half of the boost from the previous quarter.

Meanwhile in Saudi Arabia, foreign investors are pulling their money out of the country’s market. This comes in the wake of the murder of journalist Jamal Khashoggi at the Saudi consulate in Turkey a month prior. Foreign direct investment in the country has fallen to 4.71%, a 7% drop in holdings of foreign investors in Saudi markets. This equates to sales of $1.9 billion of shares in just a five-week period.

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