Monthly Commentary – November

In November, the world’s equity markets recovered some of October’s losses. The main causes for optimism were hints of a softer approach from the US Federal Reserve and hopes of an end to the US-China trade hostilities. In Europe, meanwhile, a Brexit deal appeared to move a step closer.

During the month, Jay Powell, the Federal Reserve’s chairman, appeared to change tack on the pace of future interest rate rises, saying that rates were “just below” a neutral state. A further rise is still expected in December, however, and President Trump continued to criticise Powell: “So far, I’m not even a little bit happy with my selection of Jay”. The president did, however, issue tweets suggesting that an end to the US-China trade war might be in sight, raising investors’ spirits as the G20 summit got underway at the end of the month.

Although the European Union approved a Brexit deal, many UK politicians expressed their dissatisfaction with the proposal, making its chances of getting through the UK Parliament appear slim. This uncertainty weighed on sentiment, as did Mark Carney, the Governor of the Bank of England, by announcing a set of gloomy forecasts for various Brexit scenarios.

Asian markets produced November’s strongest returns, partly reversing their weak year-to-date performance. This recovery came on optimism about a US-China trade deal and as China implemented policy measures to offset the trade war’s impact. The improved trade sentiment also boosted North American markets, as did hopes of a slower pace of rate rises. The weakest returns came from Latin America, where the Mexican market declined on worries about the incoming president’s policies. Both the UK and Europe were weak on Brexit related concerns and, in Europe’s case, also uncertainty over Italy’s budget.

One notable feature of November was a sharp fall in the price of oil, which lost more than a fifth of its value. This resulted from anxieties about oversupply, given robust output from US shale and Saudi Arabia. In consequence, the energy sector produced the weakest returns. The only other sector to decline was technology. Apple lost its $1 trillion crown after releasing a disappointing outlook and all of the FAANG stocks were down at least 20% from their previous peaks. In contrast, real estate stocks performed well on hopes of slower rate rises. Defensive sectors such as telecommunications and utilities performed well too, with healthcare the strongest sector overall.

One of our ‘ugly ducklings’, US based retailer Gap, produced third quarter results that, at face value, did nothing to inspire investors. In this instance, however, Gap’s management presented investors with an outline plan to address their concerns about the company’s underperforming brands. We expect to receive a more detailed recovery plan, involving store closures and other cost cutting measures, with the fourth quarter results in February. Hearteningly, the shares rose on this news as investors finally looked past the company’s short-term challenges to acknowledge its longer term prospects. Gap exemplifies the sort of overlooked opportunity that we continue to seek out for our investors.

Please remember that past performance may not be repeated and is not a guide for future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations. You may not get back the amount you invest.

Please note that SIT Savings Ltd is not authorised to provide advice to individual investors and nothing in this article should be considered to be or relied upon as constituting investment advice. If you are unsure about the suitability of an investment, you should contact your financial advisor.