Global Macro Environment

Global Growth Near the Bottom
The October US jobs report showed a gain of 128,000 month over month. A good result after factoring in the GM strike, which has now been resolved. The unemployment rate ticked up to 3.6% from 3.5% in September, the lowest rate the economy had seen since December 1969. US GDP rose at an annual rate of 1.9% in the third quarter, a slight decline from the 2.0% reading in the second quarter. The US consumer continues to carry the torch keeping economic growth on track, while an improvement in the housing sector also provided a boost. The Institute of Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) rose slightly to 48.3 in October but is still in contraction territory for the third straight month.

In Europe, third quarter GDP rose 0.2%, confirming the European economy is maintaining stall speed, while Brexit volatility presents an ongoing headwind to consumer confidence in the UK. China’s economy is still searching for the bottom with manufacturing PMI falling to 49.3, the sixth month of contraction.

Fed Signals Pause After Third Cut
The Federal Reserve lowered the fed funds target rate for the third time this year and began to downplay expectations of further easing. The released statement signaled a higher bar for additional cuts and removed the wording “will act as appropriate to sustain the expansion.” As a result of the statement, along with the October jobs data, the market-based probability of a fourth cut this year is currently below 25%. The European Central Bank (ECB) will restart their asset purchase program in November.

Geopolitical Risks
Below is a timeline of important Brexit updates from October:

• October 17: UK/EU draft revised Withdrawal Agreement.
• October 22: Parliament votes 329 to 299 in favor of agreement.
• October 28: UK/EU extend Brexit deadline to January 31, 2020, avoiding a possible “no-deal” Brexit on October 31. The EU also agreed an earlier divorce is possible if the UK Parliament passes a deal.
• October 29: Parliament votes 438 to 20 to hold a general election on December 12.

The outlook on Brexit is still cloudy and any prediction on what will occur December 12 seems futile. However, the probability of a “no-deal” Brexit looks to have collapsed, which should be applauded by the global economy.

Optimism seems to be growing that the “phase one deal” with China announced by President Trump earlier in October will likely materialize. A minor speed bump occurred when Chile canceled the APEC Summit, where both parties were expected to finalize the agreement, due to local unrest. As of this writing a new location or event has not been scheduled.

Market Observations

US Equities
The S&P 500 has gained 23.2% year-to-date through the end of October. According to Strategas, that result puts the index in the top decile of historical performance through the first ten months of the year going back to 1950. October performance was strong at 2.2%. Healthcare (5.1%) and information technology (3.89%) led all the sectors during the month. Large-cap growth stocks returned 2.8% compared to 1.4% for large-cap value. Growth led value within small-cap as well with small-cap growth and value returning 2.9% and 2.4%, respectively. Energy was the worst performing sector in October with a return of -2.3%.

International Equities
Developed international markets had a good month as the MSCI EAFE gained 3.6%. Growth has led value year-to-date through the end of October as the EAFE Growth Index returned 23.0% vs. 12.1% for the EAFE Value Index. Through month-end, within emerging markets, Russia (40.4%) and Greece (36.9%) have led the way in Eastern Europe, while Colombia (22.7%) and Brazil (17.6%) have outperformed in Latin America.

Fixed Income
Rates trended higher during October as investor sentiment was positive within risk assets. The Bloomberg Barclays Aggregate Index returned 0.3% for the month, while the Treasury curve steepened. Ten-year yields are up about 30bps since the early September low. Investment grade corporate bonds outperformed th e duration-equivalent Treasury index by 60bps in October. In the municipal space, favorable supply-demand dynamics, solid state and local balance sheets and net rating upgrades vs. downgrades all look to be possible tailwinds.

Real Assets
Natural resources (3.0%), MLPs (0.7%) and Real Estate (2.4%) all gained ground in October. Tensions still remain elevated with Iran in the aftermath of the Saudi Arabia drone strike. As trade talks develop, President Trump is hoping China will purchase somewhere between $40B – $50B worth of US agricultural products in the “phase one” agreement.

This Financial Landscape represents the consensus of the Oxford Investment Fellows as of 11.12.19 and is subject to change at any time due to market or economic conditions or other factors. Statistical data is derived from third party sources believed to be reliable and has not been independently verified by Oxford. The information above is for educational and illustrative purposes only and does not constitute investment, tax or legal advice.