Market Recap – Jitters Around A Likely Fed Interest Rate Hike

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Market Digest – Week Ending 11/13

Stocks posted a weekly decline for the first time in almost two months. Jitters about a likely Fed interest rate hike in December and weak earnings from a handful of retailers drove selling pressure. Oil tumbled again, amid higher than expected US inventories. US Treasury yields declined moderately as investors sought out safer assets.

Weekly Returns:

S&P 500: 2,023 (-3.6%)
FTSE All-World ex-US: (-2.9%)
US 10 Year Treasury Yield: 2.27% (-0.06%)
Gold: $1,083 (-0.5%)
USD/EUR: $1.077 (+0.3%)

Major Events:

• Tuesday – Fast food and other minimum wage earners went on strike in hundreds of cities to rally for an increase to $15 per hour.
• Wednesday – Anheuser Busch InBev reached a formal agreement to buy SABMiller for about $108 billion. The combined company will account for nearly a third of global beer sales.
• Wednesday – Alibaba Group reported a higher than expected $14.3 billion in sales during China’s Singles’ Day online shopping festival.
• Friday – Several people were killed or taken hostage in multiple attacks in Paris.
• Friday – Generic drug maker Perrigo’s shareholders rejected an acquisition bid from Mylan.

Our take:

The rebound rally following the August correction stalled out this week. That could be due to increasing signs the Fed is set to raise rates in December, or it could be that it just ran out of steam. The Total US Stock market is now slightly negative for the year, while the Total World market is down a few percent in dollar terms. What is more concerning is that the world stock market is about 5% lower than where it was in the summer of 2014.

Bull markets tend to roll over slowly, not plummet suddenly. Being down 5% in a year and a half could qualify as early signs of rolling over. We’re not saying the bull market is done, but the trend is no longer up. Many are dumping international assets and piling into US assets. So far this has worked, but valuations are now much more attractive overseas. When a full bear market arrives, and we don’t know if that will be soon or not for another 3+ years, the US will likely hold up better at first because it is viewed as a source of stability. But when all is said and done, US assets have farther to fall because of higher valuations. The dollar is now expensive on a purchasing power parity basis compared to many currencies.

If you have international stocks or bonds which were bought in the last 18 months, they are probably down. If in a taxable account, consider utilizing tax loss harvesting to benefit from the loss. But don’t forget to get back in. International diversification has been a nightmare if compared only to the S&P 500 for the last 5 years, but it is likely to be heroic in the next 5.

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Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk leads the Personal Capital Advisors Investment Committee and serves as Executive Vice President of Portfolio Management. His focus is translating improvements in technology into better financial lives. Craig has been widely quoted in the Wall Street Journal, Bloomberg, CNN Money, the Washington Post and elsewhere. Prior to Personal Capital Advisors, he was a leader within the portfolio management team at Fisher Investments, helping assets under management grow from $1.5 billion to over $40 billion. Craig graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.

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