The pace of positive economic data remained strong in early November but weakened toward month end. This was partially the result of Hurricane Sandy which hit the East Coast in late October/early November.

  • The storm wreaked havoc on a number of economic data series and normal business activity,  including retail sales (contracted by 0.3%) and manufacturing (both the Empire State and Philadelphia Fed Manufacturing Surveys reported significant business disruptions). This ultimately led to a contractionary reading in the ISM report, a surprising reading for most market participants. Following a period of strength in the first part of the recovery period, manufacturing appears to have officially stalled domestically.
  • The jobs picture remained mixed in November, with a respectable gain in nonfarm payrolls offset by the negative impact of Hurricane Sandy.
    • The Bureau of Labor Statistics reported that 171,000 jobs were added in October and the unemployment rate ticked up to 7.9% (primarily a result of a greater number of people re-entering the workforce).
  • Amid these distortions was again a clear pocket of strength in housing.
    • Existing home sales increased to an annualized rate of 4.79 million, up 2.1% from the prior month and 10.9% from one year ago. The National Association of Home Builders’ monthly Housing Market Index rose five points to the highest level since May of 2006.
    • Continuing the string of good news, the Census Bureau announced housing starts gained 3.6% and the seasonally adjusted rate was 41.9% above year ago levels. Additionally the S&P Case-Shiller Home Price Index revealed continued strength in the housing market with a 0.4% rise in home prices. The index has slowly improved since the year began, with year-over-year data moving into positive territory.

Central Banks:
The easing campaign of global central banks continued in November, as eight banks cut rates during the month and only three raised rates. Through November, global central banks have cut rates 114 times and raised them only 28 times.


November was very much a story of two halves. The first half saw global markets continuing the October declines on weak earnings results and growing concerns over the fiscal cliff. The second half of the month saw markets recover from oversold conditions due to improving global data and continued easy monetary policy. Divergence across the markets increased later in the month, with international markets enjoying a stronger rally off the lows as fiscal cliff worries muted the recovery in the US markets.

US Equities:
US stocks rebounded from mid-November lows but ultimately lagged their global counterparts, hurt by growing concerns regarding Washington’s ability to come to agreement on the fiscal cliff.

  •  The S&P 500 and NASDAQ rose 0.6% and 1.4%, respectively, while the Dow Jones Industrial Average fell 0.1%.
  • Performance trends across styles shifted toward a more cyclical bias. Growth generally outperformed value, with the Russell 1000 Growth index beating the Russell 1000 Value index by 1.7%.
  • Despite the large daily swings in equity markets in November, implied volatility suggests a more stable environment may lie ahead. The S&P volatility index fell to 15.9 and remains near the lower end of its multi-year range.
  • Despite improving economic data, most analysts continued to slash their earnings estimates in November following a dismal earnings season. According to Goldman Sachs research, analysts cut their 2013 earnings forecasts for the S&P 500 by 0.7% with estimates lower in all ten sectors.

International Equities:
After a poor start to the month, international markets rebounded nicely and ended up 1.9%. Regional leadership came mostly from developed markets where depressed valuations and improving economic data drove asset prices higher.

Fixed Income

High quality core taxable bonds were largely flat for the month with a +0.2% return as income was impaired by price depreciation. Spread sectors underperformed to wipe out Treasury gains.

  • Treasury yields sank across the curve, partly as a reflection of the uncertainty surrounding the fiscal cliff. Treasury performance during the month was thus boosted by price appreciation for a return of +0.5%. Nominal returns beat their real counterparts as TIPs were hampered by decreasing inflation expectations.
  • Corporates sold off due to a disappointing earnings season and fears of an impending fiscal cliff.
  • Agency MBS sold off as prepayments picked up and investors were wary of more robust refinancing trends ahead.
  • The recent strong performance of non-agency MBS has been a product of investor appetite for yield combined with a consistently improving housing outlook.

Intermediate municipals gained 0.7% during November as lower rated and longer duration munis continued to outperform. Robust performance has been driven by decreasing muni-to-Treasury ratios in the context of lower Treasury yields. Ten year munis now yield only 85% of Treasuries, a 2012 low.

Strong demand for munis can be attributed to consensus expectations for tax increases, which would make the tax exemption feature of the securities more valuable. However, there are other legislative currents in the muni markets that investors should be aware of as the upcoming fiscal cliff discussions continue.

  • There has been discussion about limiting the tax exemption of munis at 28% for high income investors. The impact on the muni markets would be dramatic as grandfathered securities diverge from newly issued munis with impaired tax exemption.
  • Another possibility could be the elimination of certain issuers that can currently access the tax-free market, such as hospitals, higher education and industrial development. Such a development would cause a contraction in the market place that is concentrated in lower quality, higher yielding securities.


A macro-dominated market environment led many Alternatives strategies to perform similarly to equities in November, slightly positive, but with no major outliers.

  • Event driven managers performed well in the month as the overall index rose 0.6%. The best performing strategies include special situations and merger arbitrage, up 0.9% and 0.5%, respectively.
  • Alternative strategies are looking to wrap up the year and lock in existing gains. Despite higher net market exposure for equity long/short managers, the bulk of managers are locking in profits in advance of light trading volume during the holiday season. While index level data shows another disappointing effort for the universe this year, there was a very high level a of dispersion among Alternative investments, with some managers easily beating the market and others offering a return profile commensurate with their hedged nature. Declining uncertainty and an improvement in the global economic backdrop could prove to be the tailwind managers need in 2013.
  • MLPs lagged broad equities during the month by a small margin with no real news to direct the sector. MLPs finished November yielding on average roughly 6.3%, almost 4.7% above that of the 10-year treasury.


This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the Funds or any stock in particular, nor should it be construed as a recommendation to purchase or sell a security, including futures contracts.

There are risks involved with investing, including loss of principal. Current and future portfolio holdings are subject to risks as well. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Narrowly focused investments and smaller companies typically exhibit higher volatility. Bonds and bond funds will decrease in value as interest rates rise. High-yield bonds involve greater risks of default or downgrade and are more volatile than investment-grade securities, due to the speculative nature of their investments. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume.

Diversification may not protect against market risk. There is no assurance the objectives discussed will be met. Past performance does not guarantee future results Index returns are for illustrative purposes only and do not represent actual portfolio performance. Index returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly in an index.