Fidelity Bank - Wealth Management
October 2019 Market Review
William J. Fennie III, CFA
Financial markets embraced signs of easing geopolitical tensions in October. The US and China moved closer to agreeing to a partial trade deal, while the UK once delayed a no-deal Brexit. Global central banks remained accommodative and the US Federal Reserve cut interest rates for the third time this year. During the month, US stocks gained 2.17% and Bloomberg Barclays US Aggregate Bond index gained 0.30% in October.
High Quality Stocks continued their dominance in October besting the S&P 500 by 83 basis points. Year-to-date, High Quality stocks lead the S&P 500 by 4.92%. In a reversal of what occurred in September, Value stocks trailed their Growth brethren across market cap. In October, Large Growth jumped 2.40% while Large Value only delivered 1.40%; in Small Cap space, Growth outpaced Value by 43 basis points (2.85% vs. 2.42%).
The Global Industry Classification Standard sectors (GICS) were a mixed bag in October with 6 of 11 sector groups posting positive returns for the month. Health Care, Technology, and Financial sectors led the way, up 5.12%, 3.89%, and 2.41%, respectively. Energy and Utilities were the laggards, falling 2.15% and 0.76% in October, respectively.
Dollar weakness enhanced returns for US investors in Developed Markets and Emerging Markets. The Dollar Index, which measures the US Dollar against Developed Market currencies, lost about 2.04% in October. The MSCI EAFE index gained 1.67% in local currency terms but gained 3.59% in US Dollar terms. The MSCI Emerging Market Currency Index strengthened by 1.91% versus the US Dollar in October. The MSCI Emerging Markets index gained 3.00% in local currency, but the conversion to US Dollars increased that gain to 4.22%. Brexit and trade war consternation continues to be the market moving headline.
The Federal Reserve’s third rate cut in this easing cycle and more easing from the ECB, caused short-term rates (1-month to 1-year) in the US to fall while longer-term rates (2-year to 30-year) moderated with slight decreases to slight increases. Chairman Powell’s language suggested at pause in rate decreases. While portions of the Treasury curve are still slightly inverted, the movement in rates over the last few months shifted the curve to a more normal upwardly sloping curve. As a result, Treasuries rose 0.07% during September.
High Yield Bonds rallied 0.28% in October. High Yield spread to 10 Year Treasury bonds rose by 4 basis points to end the month at 4.01%. The long-term average spread is about 5.13%. High Yield bonds yielded approximately 5.70% at the end of October. Investment Grade Corporates rose 0.61% in September. Year-to-date Investment Grade Corporates and High Yield Corporates are up 13.89% and 11.71%, respectively.
In international fixed income, German 10 Year Bunds rose 16.5 basis points and closed the month negative 40.9 basis points. US Dollar weakness supported Emerging Markets Debt in October, rising 2.90%. Year-to-date Emerging Markets Debt is up 10.98% and currently yields about 6.40%.
The Bloomberg Commodity Index gained 2.02% in October. Consumers can expect to pay a little more at the pump as unleaded gasoline jumped 5.41% due to unscheduled refinery outages. Precious metals gained 3.79% with Palladium leading the way, gaining more than 6.5%. The spot price for Gold jumped 2.84%. Real estate gained 1.08% and is now up 29.88% year-to-date.
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October 2019 Market Review is intended solely to report on various investment views held by Fidelity Deposit & Discount Bank and is distributed for informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. Fidelity Deposit & Discount Bank does not have any obligation to provide revised opinions in the event of changed circumstances. All data is provided by Bloomberg Finance, LP and Morningstar Direct. We believe the information provided here is reliable but should not be assumed to be accurate or complete. Data as of 9/30/2019. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer or recommendation to purchase or sell a security. Past performance is no guarantee of future results. All investment strategies and investments involve risk of loss and nothing within this report should be construed as a guarantee of any specific outcome or profit. Investors should make their own investment decisions based on their specific investment objectives and financial circumstances and are encouraged to seek professional advice before making any decisions. Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. The S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large‐cap segment of the U.S. equities market.