Weekly Market Overview | November 26, 2018

November 26, 2018 by Peter Sorrentino

In a holiday-abbreviated week, the major market indices all managed to cross the threshold into correction territory, that being a decline of 10% or more from the market peak registered in early September. One encouraging statistic from last week was the drop in trading volume. In past declines that span holidays, trading volume has remained elevated, but last week it fell almost in line with that of 2017. All of which is to say that this does not look like a race for the exits. In fact, a recent survey of institutional portfolio allocations found that U.S. equities are at roughly 30%, the lowest level of exposure since the end of 2015. To be sure, this correction has been painful, having erased over $3 trillion in market capitalization so far.

Last week, it was the former market leadership that bore the brunt of the selling pressure, with technology falling 6.2%, communication services off 4.9% and consumer discretionary issues off 4.5%. The only sector able to resist the tide was utilities, buoyed again by falling interest rates, enabling the group to post a gain of 0.11%. As you might expect, the decline had a definite flavor to it, as large growth stocks pulled down their respective benchmarks. The S&P 500® Index fell 3.6%, while the S&P 600 Index lost only 2.2%. The Russell 1000 Growth Index declined 4.7%, while the Russell 1000 Value Index lost only 2.25% for the week. International equities fared much better last week, as the MSCI EAFE® Index declined just 1.12%, and the MSCI Emerging Market Index fell 1.74%. Despite headlines to the contrary, commodities were mixed, save once again for crude oil, as the price of West Texas Intermediate lost another 7.7%, finishing the week at $50.42 per barrel. Agricultural prices saw grains slipping fractionally, while livestock prices rose slightly. Industrial and precious metals declined fractionally as well. The term structure of interest rates has once again flattened, with the yield differential between two-year and thirty-year U.S. Treasury debt now at just one half of one percent.

Investors worldwide are haunted by the prospect of impending recession and are seizing upon random data points to support the premise. A quick reminder here that the market has predicted seven of the last three recessions, so it is by no means a foolproof indicator. Again, our view is that this is a late cycle economy and, as such, we will experience the ascendance of business spending versus consumer spending, the rise of smaller stocks over large ones and faster growing emerging economies over decelerating larger ones. Nothing that has occurred thus far has compelled us to alter that outlook. Oil prices are falling, thus reducing inflation pressures and supporting not only consumer spending but the prospects for import-dependent emerging economies. Business spending plans for 2019 and beyond, while slowing slightly from 2018 levels, are still roughly twice the recent five-year average. This spending is serving to boost productivity that, in turn, accelerates profit growth. Once again, whether the glass is half empty or half full depends upon what you want to see.

For a PDF version of this publication, click here: 11.26.2018_WeeklyMarketOverview

 

NOTE: IMPORTANT INFORMATION
Source: Unless otherwise noted, all statistics herein obtained from Bloomberg.
This is not a complete analysis of every material fact regarding any company, industry or security. The information and materials herein has been obtained from sources we consider to be reliable, but Comerica Wealth Management does not warrant, or guarantee, its completeness or accuracy. Materials prepared by Comerica Wealth Management personnel are based on public information. Facts and views presented in this material have not been reviewed by, and may not reflect information known to, professionals in other business areas of Comerica Wealth Management, including investment banking personnel. The views expressed are those of the author at the time of writing and are subject to change without notice. We do not assume any liability for losses that may result from the reliance by any person upon any such information or opinions. This material has been distributed for general educational/informational purposes only and should not be considered as investment advice or a recommendation for any particular security, strategy or investment product, or as personalized investment advice. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The investments and strategies discussed herein may not be suitable for all clients. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Comerica Wealth Management consists of various divisions and affiliates of Comerica Bank, including Comerica Bank & Trust, National Association; World Asset Management, Inc.; Comerica Securities, Inc.; and Comerica Insurance Services, Inc. and its affiliated insurance agencies. World Asset Management, Inc. and Comerica Securities, Inc. are federally registered investment advisors. Registrations do not imply a certain level of skill or training. Comerica Bank and its affiliates do not provide tax or legal advice. Please consult with your tax and legal advisors regarding your specific situation. Non-deposit Investment products offered by Comerica and its affiliates are not insured by the FDIC, are not deposits or other obligations of or guaranteed by Comerica Bank or any of its affiliates, and are subject to investment risks, including possible loss of the principal invested. Past performance is not indicative of future results. Information presented is for general information only and is subject to change.

The S&P 500® Index, S&P MidCap Index, S&P 600 Index and Dow Jones Wilshire 5000 (collectively, “S&P® Indices”) are products of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and Standard & Poor’s Financial Services, LLC and has been licensed for use by Comerica Bank, on behalf of itself and its Affiliates. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). The trademarks have been licensed to SPDJI and sublicensed for certain purposes by Comerica Bank, on behalf of itself and its Affiliates. Nothing herein is sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, any of their respective affiliates (collectively, “S&P Dow Jones Indices”) or Standard & Poor’s Financial Services LLC. Neither S&P Dow Jones Indices nor Standard & Poor’s Financial Services, LLC make any representation or warranty, express or implied, to the owners of the content herein, or any member of the public regarding the advisability of investing in securities generally or in particular strategies or the ability of any particular strategy to track general market performance. SPDJI and Standard & Poor’s Financial Services, LLC only relationship to Comerica Bank, on behalf of itself and its Affiliates with respect to the S&P® Indices is the licensing of the Indices and certain trademarks, service marks, and/or trade names of S&P Dow Jones Indices and/or its licensors. The S&P Indices are determined, composed and calculated by S&P Dow Jones Indices or Standard & Poor’s Financial Services, LLC without regard to Comerica Bank and its Affiliates or any of the content herein. S&P Dow Jones Indices and Standard & Poor’s Financial Services, LLC have no obligation to take the needs of Comerica and its Affiliates or the owners of any of the content herein into consideration in determining, composing or calculating the S&P Indices. Neither S&P Dow Jones Indices nor Standard & Poor’s Financial Services, LLC are responsible for and have not participated in the determination of the prices, and amount of any particular strategy or the timing of the issuance or sale of any particular strategy or in the determination or calculation of the equation by which any particular strategy is to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow Jones Indices and Standard & Poor’s Financial Services, LLC have no obligation or liability in connection with the administration, marketing or trading of any particular strategy. There is no assurance that any particular investment product based on the S&P Indices will accurately track index performance or provide positive investment returns. SPDJI is not an investment advisor. Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.

NEITHER S&P DOW JONES INDICES NOR STANDARD & POOR’S FINANCIAL SERVICES, LLC GUARANTEES THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE WAM STRATEGIES OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNCATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES AND STANDARD & POOR’S FINANCIAL SERVICES, LLC SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES AND STANDARD & POOR’S FINANCIAL SERVICES, LLC MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES, OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY COMERICA AND ITS AFFILIATES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P INDICES OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES OR STANDARD & POOR’S FINANCIAL SERVICES, LLC BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD-PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND COMERICA AND ITS AFFILIATES, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.

“Russell 2000® Index” is a trademark of Russell Investments, licensed for use by Comerica Bank and World Asset Management, Inc. The source of all returns is Russell Investments. Further redistribution of information is strictly prohibited.

MSCI EAFE® is a trade mark of Morgan Stanley Capital International, Inc. (“MSCI”).

FTSE International Limited (“FTSE”) © FTSE 2016. FTSE® is a trade mark of London Stock Exchange Plc and The Financial Times Limited and is used by FTSE under license. All rights in the FTSE Indices vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE Indices or underlying data.

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Weekly Market Overview | November 19, 2018

November 19, 2018 by Peter Sorrentino

Global equity markets declined last week, as investors grappled to balance the potential for economic deceleration with positive corporate growth forecasts. A large portion of last week’s trading represented yet another series of reversion to the mean price actions. After enduring a precipitous decline following the market peak on September 20th, the basic materials sector turned one of only two positive price moves, picking up 0.47%. With interest rates slipping back last week, the utility sector managed last week’s only other positive price movement, rising a fractional 0.02%. The heaviest selling pressure for the week fell on the consumer discretionary stocks, as same-store sales data for Nordstrom, Macy’s and Kohl’s resulted in double-digit percentage declines for these department store brands that served to take the group down 3.32%. Technology shares suffered the second worst decline last week, with the group falling 2.33%. In technology, the weakness was widespread, but the most notable declines were among companies such as Invidia, that have been associated with demand for crypto currencies. The recent price decline of Bitcoin and others led to a drop in demand for the technology needed to mine and process blockchain transactions. Surprisingly last week, the decline in interest rates did not produce a shift of investor preference back to growth over value. As measured by the Russell 1000 Index, value fell only 0.72% to growth’s -2.22%. In global stock prices, emerging markets rallied 1.04%, while the developed markets lost 1.45%, a virtual reversal of the prior week’s price action. Part of the bounce experienced by the materials stocks is attributable to a positive week for commodity prices, as the group enjoyed broad-based price gains despite the continued drop experienced by crude oil. Precious metals added over 1%, while industrial metals, led by a 2.5% rise in copper, were higher as well. Soybeans led the agricultural sector with a gain of 1.94%. Domestic natural gas continues to rally. After trading at or below $3 per Mcf1 for most of the year, it has now crested the $4.25 level, picking up 15% last week alone.

Exhibit 1, extracted from a recent Bloomberg article, demonstrates how much the world has changed in recent years and highlights how oil production has shifted. The U.S., Russia and Saudi Arabia now account for as much crude oil output as the remainder of OPEC combined. The article goes on to point out that these three producers have entirely different agendas than those long held by OPEC members. Further complicating the outlook for energy, the International Energy Agency lowered its demand growth forecast for 2019 this week. This will also serve to complicate the deliberations of the Federal Reserve policy makers, as falling energy prices will have an impact on inflation and economic growth. As we have experienced in the equity markets in recent weeks, fear of the unknown continues to haunt investors. Will the policy makers continue to raise rates? Right now, the bond market is saying ‘no’. Will stable interest rates aid equity valuations? Again, the immediate answer has been ‘no’ as well. But the underlying corporate fundamentals are still positive. The emerging bottoms up earnings outlook for the S&P 500® Index for 2019 forecasts a 9% rise, driving a 1.2% increase in the return on equity for investors. Hardly a gloomy prospect and, given recent price weakness, it places a 15 times earnings multiple on the market. While not cheap by any measure, it is far less risky than it has been.

 

Exhibit 1 (Source: Bloomberg) Note: Includes crude, condensates, and natural gas liquids

11,000 cubic feet of natural gas

For a PDF version of this publication, click here: 11.19.2018_WeeklyMarketOverview


NOTE: IMPORTANT INFORMATION
Source: Unless otherwise noted, all statistics herein obtained from Bloomberg.
This is not a complete analysis of every material fact regarding any company, industry or security. The information and materials herein has been obtained from sources we consider to be reliable, but Comerica Wealth Management does not warrant, or guarantee, its completeness or accuracy. Materials prepared by Comerica Wealth Management personnel are based on public information. Facts and views presented in this material have not been reviewed by, and may not reflect information known to, professionals in other business areas of Comerica Wealth Management, including investment banking personnel. The views expressed are those of the author at the time of writing and are subject to change without notice. We do not assume any liability for losses that may result from the reliance by any person upon any such information or opinions. This material has been distributed for general educational/informational purposes only and should not be considered as investment advice or a recommendation for any particular security, strategy or investment product, or as personalized investment advice. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The investments and strategies discussed herein may not be suitable for all clients. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Comerica Wealth Management consists of various divisions and affiliates of Comerica Bank, including Comerica Bank & Trust, National Association; World Asset Management, Inc.; Comerica Securities, Inc.; and Comerica Insurance Services, Inc. and its affiliated insurance agencies. World Asset Management, Inc. and Comerica Securities, Inc. are federally registered investment advisors. Registrations do not imply a certain level of skill or training. Comerica Bank and its affiliates do not provide tax or legal advice. Please consult with your tax and legal advisors regarding your specific situation. Non-deposit Investment products offered by Comerica and its affiliates are not insured by the FDIC, are not deposits or other obligations of or guaranteed by Comerica Bank or any of its affiliates, and are subject to investment risks, including possible loss of the principal invested. Past performance is not indicative of future results. Information presented is for general information only and is subject to change.

The S&P 500® Index, S&P MidCap Index, S&P 600 Index and Dow Jones Wilshire 5000 (collectively, “S&P® Indices”) are products of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and Standard & Poor’s Financial Services, LLC and has been licensed for use by Comerica Bank, on behalf of itself and its Affiliates. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). The trademarks have been licensed to SPDJI and sublicensed for certain purposes by Comerica Bank, on behalf of itself and its Affiliates. Nothing herein is sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, any of their respective affiliates (collectively, “S&P Dow Jones Indices”) or Standard & Poor’s Financial Services LLC. Neither S&P Dow Jones Indices nor Standard & Poor’s Financial Services, LLC make any representation or warranty, express or implied, to the owners of the content herein, or any member of the public regarding the advisability of investing in securities generally or in particular strategies or the ability of any particular strategy to track general market performance. SPDJI and Standard & Poor’s Financial Services, LLC only relationship to Comerica Bank, on behalf of itself and its Affiliates with respect to the S&P® Indices is the licensing of the Indices and certain trademarks, service marks, and/or trade names of S&P Dow Jones Indices and/or its licensors. The S&P Indices are determined, composed and calculated by S&P Dow Jones Indices or Standard & Poor’s Financial Services, LLC without regard to Comerica Bank and its Affiliates or any of the content herein. S&P Dow Jones Indices and Standard & Poor’s Financial Services, LLC have no obligation to take the needs of Comerica and its Affiliates or the owners of any of the content herein into consideration in determining, composing or calculating the S&P Indices. Neither S&P Dow Jones Indices nor Standard & Poor’s Financial Services, LLC are responsible for and have not participated in the determination of the prices, and amount of any particular strategy or the timing of the issuance or sale of any particular strategy or in the determination or calculation of the equation by which any particular strategy is to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow Jones Indices and Standard & Poor’s Financial Services, LLC have no obligation or liability in connection with the administration, marketing or trading of any particular strategy. There is no assurance that any particular investment product based on the S&P Indices will accurately track index performance or provide positive investment returns. SPDJI is not an investment advisor. Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.

NEITHER S&P DOW JONES INDICES NOR STANDARD & POOR’S FINANCIAL SERVICES, LLC GUARANTEES THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE WAM STRATEGIES OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNCATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES AND STANDARD & POOR’S FINANCIAL SERVICES, LLC SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES AND STANDARD & POOR’S FINANCIAL SERVICES, LLC MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES, OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY COMERICA AND ITS AFFILIATES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P INDICES OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES OR STANDARD & POOR’S FINANCIAL SERVICES, LLC BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD-PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND COMERICA AND ITS AFFILIATES, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.

“Russell 2000® Index” is a trademark of Russell Investments, licensed for use by Comerica Bank and World Asset Management, Inc. The source of all returns is Russell Investments. Further redistribution of information is strictly prohibited.

MSCI EAFE® is a trade mark of Morgan Stanley Capital International, Inc. (“MSCI”).

FTSE International Limited (“FTSE”) © FTSE 2016. FTSE® is a trade mark of London Stock Exchange Plc and The Financial Times Limited and is used by FTSE under license. All rights in the FTSE Indices vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE Indices or underlying data.

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Weekly Market Overview | November 12, 2018

November 12, 2018 by Peter Sorrentino

Despite Friday’s poor showing, last week was positive for developed markets, as the S&P 500® Index picked up 2.16%, and the MSCI EAFE® Index managed to tack on 0.2%. U.S. equities were led by a rally among the large pharmaceutical manufactures, driving the sector to a 4.13% advance. This was followed by 3%+ gains among the electrical utility stocks and the food and beverage companies in the consumer staples. In a change from recent weeks, no sector posted a loss last week; however, the S&P Small Cap 600 Index fell a fractional 0.08%. Commodity prices were broadly lower last week, with the price of crude oil losing another 4.7%, as the number of exceptions granted regarding the sanctions on Iranian oil far exceeded expectations. This drop in crude oil prices led to a 5.1% decline in gasoline prices. Industrial metals were led lower by a 3.6% drop in copper prices. The agricultural sector experienced overall weakness of roughly 2%, as strong harvest data and concerns over market access continued to collide. Interest rates were notably active last week as witnessed by the ten-year treasury trading up to a 3.2447% yield only to rally back to 3.1819% on Friday. Investors sold equities in favor of bonds over rising concerns of slowing global economic growth following data releases in the U.K. and Germany. The resumption of the gradual rise in interest rates continued to have an impact on equity performance as the Russell 1000 Value Index advanced 2.28% to the Russell 1000 Growth Index gain of 1.72%.

The most common concern expressed by clients in 2017 had to do with the investment of cash, whether it was from the sale of a business, real estate or even another investment. The fear being that, with the market having done so well for so long, it was too late to invest in stocks. Furthermore, interest rates were so low, it did not make sense to lock up funds for so little yield, and with short-term rates just above the rate of inflation, after paying taxes they were losing ground. For those to whom we recommended the capital preservation models, there was resistance as those portfolios have an allocation to equities. While that may seem counterintuitive, I offer Exhibit 1, in which you will see that the rolling twelve-month positive return probability is better for those portfolios with a ten to twenty percent equity allocation. Yes, over sixty-eight years of rolling twelve-month periods, you stood a better chance of generating a positive return, even in the most conservative posture, by allocating part of your assets to stocks. This also enhanced the average rate of return. The return of volatility to financial markets this year has rightfully shaken investors and caused them to question their approach, but as this illustration points out, prudence for prudence’s sake is not a virtue; fortune favors the bold.

Exhibit 1 (Source: Crandall, Pierce & Company)

For a PDF version of this publication, click here: 11.12.2018_WeeklyMarketOverview

 

NOTE: IMPORTANT INFORMATION
Source: Unless otherwise noted, all statistics herein obtained from Bloomberg.
This is not a complete analysis of every material fact regarding any company, industry or security. The information and materials herein has been obtained from sources we consider to be reliable, but Comerica Wealth Management does not warrant, or guarantee, its completeness or accuracy. Materials prepared by Comerica Wealth Management personnel are based on public information. Facts and views presented in this material have not been reviewed by, and may not reflect information known to, professionals in other business areas of Comerica Wealth Management, including investment banking personnel. The views expressed are those of the author at the time of writing and are subject to change without notice. We do not assume any liability for losses that may result from the reliance by any person upon any such information or opinions. This material has been distributed for general educational/informational purposes only and should not be considered as investment advice or a recommendation for any particular security, strategy or investment product, or as personalized investment advice. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The investments and strategies discussed herein may not be suitable for all clients. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Comerica Wealth Management consists of various divisions and affiliates of Comerica Bank, including Comerica Bank & Trust, National Association; World Asset Management, Inc.; Comerica Securities, Inc.; and Comerica Insurance Services, Inc. and its affiliated insurance agencies. World Asset Management, Inc. and Comerica Securities, Inc. are federally registered investment advisors. Registrations do not imply a certain level of skill or training. Comerica Bank and its affiliates do not provide tax or legal advice. Please consult with your tax and legal advisors regarding your specific situation. Non-deposit Investment products offered by Comerica and its affiliates are not insured by the FDIC, are not deposits or other obligations of or guaranteed by Comerica Bank or any of its affiliates, and are subject to investment risks, including possible loss of the principal invested. Past performance is not indicative of future results. Information presented is for general information only and is subject to change.

The S&P 500® Index, S&P MidCap Index, S&P 600 Index and Dow Jones Wilshire 5000 (collectively, “S&P® Indices”) are products of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and Standard & Poor’s Financial Services, LLC and has been licensed for use by Comerica Bank, on behalf of itself and its Affiliates. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). The trademarks have been licensed to SPDJI and sublicensed for certain purposes by Comerica Bank, on behalf of itself and its Affiliates. Nothing herein is sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, any of their respective affiliates (collectively, “S&P Dow Jones Indices”) or Standard & Poor’s Financial Services LLC. Neither S&P Dow Jones Indices nor Standard & Poor’s Financial Services, LLC make any representation or warranty, express or implied, to the owners of the content herein, or any member of the public regarding the advisability of investing in securities generally or in particular strategies or the ability of any particular strategy to track general market performance. SPDJI and Standard & Poor’s Financial Services, LLC only relationship to Comerica Bank, on behalf of itself and its Affiliates with respect to the S&P® Indices is the licensing of the Indices and certain trademarks, service marks, and/or trade names of S&P Dow Jones Indices and/or its licensors. The S&P Indices are determined, composed and calculated by S&P Dow Jones Indices or Standard & Poor’s Financial Services, LLC without regard to Comerica Bank and its Affiliates or any of the content herein. S&P Dow Jones Indices and Standard & Poor’s Financial Services, LLC have no obligation to take the needs of Comerica and its Affiliates or the owners of any of the content herein into consideration in determining, composing or calculating the S&P Indices. Neither S&P Dow Jones Indices nor Standard & Poor’s Financial Services, LLC are responsible for and have not participated in the determination of the prices, and amount of any particular strategy or the timing of the issuance or sale of any particular strategy or in the determination or calculation of the equation by which any particular strategy is to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow Jones Indices and Standard & Poor’s Financial Services, LLC have no obligation or liability in connection with the administration, marketing or trading of any particular strategy. There is no assurance that any particular investment product based on the S&P Indices will accurately track index performance or provide positive investment returns. SPDJI is not an investment advisor. Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.

NEITHER S&P DOW JONES INDICES NOR STANDARD & POOR’S FINANCIAL SERVICES, LLC GUARANTEES THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE WAM STRATEGIES OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNCATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES AND STANDARD & POOR’S FINANCIAL SERVICES, LLC SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES AND STANDARD & POOR’S FINANCIAL SERVICES, LLC MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES, OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY COMERICA AND ITS AFFILIATES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P INDICES OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES OR STANDARD & POOR’S FINANCIAL SERVICES, LLC BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD-PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND COMERICA AND ITS AFFILIATES, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.

“Russell 2000® Index” is a trademark of Russell Investments, licensed for use by Comerica Bank and World Asset Management, Inc. The source of all returns is Russell Investments. Further redistribution of information is strictly prohibited.

MSCI EAFE® is a trade mark of Morgan Stanley Capital International, Inc. (“MSCI”).

FTSE International Limited (“FTSE”) © FTSE 2016. FTSE® is a trade mark of London Stock Exchange Plc and The Financial Times Limited and is used by FTSE under license. All rights in the FTSE Indices vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE Indices or underlying data.

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Weekly Market Overview | November 5, 2018

November 5, 2018 by Peter Sorrentino

Last week, the cyclical stocks enjoyed a substantial upward repricing, led by a 6.1% gain among the materials stocks, followed by 4.4% gains for both the financial and consumer discretion sectors. The only stocks to lose ground last week were the interest-rate-sensitive utility stocks in response to a rebound in interest rates that brought the yield on the ten-year Treasury note back over 3.2%. The snap back in interest rates also pushed value stocks ahead of growth in the performance derby between the two competing approaches. By Friday’s close, the Russell 1000 Value Index added 3.02% to the 2.29% gained by the Russell 1000 Growth Index. With risk back in vogue, the MSCI Emerging Market Index recovered 6.08%, while the MSCI EAFE® Index was up 3.33%. With the value of the dollar largely unchanged last week, these gains were the result of capital flows back into those markets. Commodity prices were a study in contrast, as crude oil continued to suffer, falling 6.6%. On the other hand, agricultural prices rose last week, with the cost of soybeans increasing 3.5%. Industrial metals were mixed, with copper up 2%, while ferrous metals fell slightly. The CBOE VIX, the commonly-cited measure of market volatility, fell from a recent high of 25. It remains at an elevated level of 20, indicating that while last week’s rebound was enjoyable, it should not be taken as an ‘all clear’ by investors.

So, what changed last week? With over 70% of companies having reported third quarter earnings, the inescapable reality is that both third quarter and fourth quarter revisions are running significantly better than the historic trend line. In plain English, that translates to analysts were seemingly not optimistic enough, and corporate results are coming in better than estimated. As a result, analysts are taking the numbers for the balance of the year up. This then carries over into the outlook for 2019, pushing those numbers up and building the valuation case for stock prices to recover some of the recently lost ground. Investors were pricing in an imminent downturn in the business cycle that no longer appears to be quite so imminent.

Not to be overlooked, and just as important, was Thursday’s release of productivity and labor costs by the Bureau of Labor Statistics. One of the unique features of this recovery has been the very low level of productivity growth, which manifested itself in falling profit margins. Corporate profit margins turned up at the end of Q2 2017, after falling for six quarters, but the official productivity numbers remained largely flatlined. Thursday’s release represented a change in the right direction, with third quarter posting a 2.2% seasonally-adjusted annual rate of increase for the nonfarm economy overall. Manufacturing is still somewhat anemic at only an 0.5% gain; this may be another timing-related lag. Equally important is the fact that the Employment Cost Index, or ECI, rose only 1.2% for the same period. The reason this is so important is that so long as productivity growth exceeds the rate of labor inflation, you can have as much inflation as you want, and the results are benign. This condition was the hallmark of the 1990’s expansion, the longest on record. Intuitively, it follows that so long as you receive a greater level of output from each unit of input, the cost of the input is effectively irrelevant. So, wages rise, and profits rise, thus, supporting higher equity prices.

For a PDF version of this publication, click here: 11.05.2018_WeeklyMarketOverview

 

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