Weekly Market Update: US Equities continue their rebound, oil enters bear market and Democrats win the House

Mon 12 Nov 2018

Read our full Market Update Week 45

Market Update

US stocks continued their rebound this week, with energy and financials sectors up +1.4% and +1.5%, while the tech sector suffered as Amazon and Apple saw big falls. General Electric also fell to it lowest level since the GFC. Emerging Market equities were down -2.4% in Sterling terms, while Italian bond yields rose due to continued budget concerns. Japanese and European equities also saw a drop of -1.0% and -0.2% respectively, while UK stock rose +0.2%. US 10Y Treasury yields dropped to 3.18% as the mid-term election results rolled in. Sterling saw no change vs USD this week with the BoE signalling that it might need to raise interest rates at a faster rate to facilitate a smoother Brexit. Brent Crude Oil prices pushed into bear market territory, falling over 4.4% below $70 a barrel. Gold was down in USD terms at $1,209 per ounce.

CIO Analysis

The press is focusing on the midterms and oil entering bear market territory, which have not, however, perturbed investors. A Democrat House was largely priced in by markets and for all the noise about subpoenas, investors know that impeachment probabilities are low. Going forward, we’d focus on trade wars and the Democratic primary (Beto is a man to watch). Oil, more of a strategic, less of a financial commodity, is near the lower range of prices tolerable to the Saudis. Over the medium term, $60 oil should alleviate some inflation pressures, but we don’t see it changing the Fed’s course just yet. With lack of other significant catalysts, it’s time for British investors to focus on Brexit. The government has the near impossible task to deliver a solution that keeps a divided electorate happy, supports long term growth and does not incur short term pain. Harvey Specter says: “When someone points a gun at your face, you take the gun, or you pull out a bigger one. Or, you call their bluff. Or, you do any one of a hundred and forty six other things”. The best way out of this is probably an imaginative forward solution reshaping the British economy, but in the meanwhile investors should prepare for policy uncertainty ahead of Brexit Date on 29 March.

David Baker, CIO