Economic Backdrop

Monetary policy accommodation continued to differ across major central banks, reflecting varying degrees of national economic strength. The Bank of England’s (BOE) Monetary Policy Committee (MPC) split along familiar lines, voting 7 – 2 in favor of keeping its benchmark interest rate at 0.50% instead of an immediate increase. The European Central Bank (ECB) elected to maintain a near-zero refinance rate and negative rates on its deposit and marginal lending facilities. ECB President Mario Draghi indicated that an asset purchase program, which began in October, could extend to Eurozone government debt if conditions warrant. The U.S. Federal Reserve (Fed) entered November with no policy-easing programs underway for the first time in several years following the conclusion of the Federal Open Market Committee’s (FOMC) asset purchase program in October (although the principal proceeds from current holdings will continue to be reinvested). The latest FOMC meeting minutes, however, emphasized international economic weakness and low domestic inflation, signaling a potential inclination to hold its current accommodative near-zero interest rate stance in place for a while. The Bank of Japan’s late-October policy board meeting minutes showed a near-even split vote in favor of increased asset purchases. Prime Minister Shinzo Abe called a general election and postponed a planned consumption tax increase as the country entered recession.

U.S. consumer sentiment held near multi-year highs in November, as the labor market continued to make slow progress. The unemployment rate fell to 5.8% in October and held there in November, despite adding the most jobs in almost three years. Personal incomes rose 0.2%, in line with consumer spending following a decline in September. Initial jobless claims remained strong relative to their long-term levels, but trended away from multi-year lows during November. Industrial production unexpectedly edged 0.1% lower in October on volatile mining and utilities components, while manufacturing continued to deliver gains. The services sector continued to expand in October, as expected. Producer prices increased 0.2% in October and consumer prices were flat, overcoming expectations for declines. Both measures were 0.2% higher when adjusted to exclude food and energy. Third-quarter U.S. economic growth was unexpectedly revised upward to a 3.9% annualized rate. While improved, the estimate was still slower than second quarter growth.

The U.K. retail market looked strong in November relative to historical levels, although softer than after October’s gains. Consumer prices were higher in October, while producer prices fell on lower input costs; consensus expectations from the BOE and British industry suggest near-term price weakness. Manufacturing output quickened in October, partially mitigating the previous month’s drop and remaining above its long-term average, while the service sector continued to expand more slowly than expected. An unexpected decline in home prices during October was accompanied by a downward revision to September’s already sluggish advance. Construction activity remained historically strong in October, but fell to its slowest pace in five months due to weaker housing activity. The labor market showed sustained improvement, with new unemployment claims marking two years of declines in October. However, the unemployment rate held steady at 6.0% through September and real average earnings fell. The latest estimate for third-quarter economic growth held at 0.7% and 3.0% over the prior year, slower than during the second quarter.

Eurozone business activity appeared set for another deceleration in November, with the services sector reporting a significant slowdown in growth. The manufacturing sector, which narrowly reached sixteen straight months of gains in October, stayed just above breakeven levels in November, according to preliminary reports. Core consumer prices remained positive from a year earlier, although they continued a trend toward multi-month lows. Consumer confidence registered a surprise drop for the fourth time in the last five months, while economic sentiment edged upward. Weak sentiment in Germany and Italy was offset by strength in France and Spain. The unemployment rate remained at 11.5% during October; Germany and Spain slightly improved, France held steady and Italy worsened. The Eurozone economy grew 0.2% during the third quarter, in line with a 0.8% increase over the prior year. While the rate of growth was slow, the report marked six consecutive quarters of expansion.

Market Impact

Fixed-income performance was generally positive and largely dependent on currency effects. Hedged global sovereign debt was the top performer, followed by U.S. Treasuries. U.S. mortgage-backed securities and U.S. investment-grade fixed income also performed well, followed by U.S. asset-backed securities. Dollar-denominated emerging market sovereign debt, October’s lead performer, was narrowly positive along with U.S. Treasury-Inflation Protected Securities. U.S. high-yield fixed income declined along with unhedged global sovereign debt.

Equity-market returns were mixed on an intra-regional basis with the exception of Europe, which represented the leading regional performer. Nine of the top ten best performing countries were located in Europe. The U.S. followed closely behind, and the U.K. had a positive month. Some Asian markets (China, India and Taiwan) performed well, others declined (Malaysia, Korea), while Japan wound up in the middle with a small gain (although yen-denominated performance was quite strong). Latin America hosted November’s worst return in Colombia, also driven in part by currency effects, as well as several other poor performers (Brazil, Mexico and Chile). The bottom three were rounded out by Norway and Russia, as their currencies are sensitive to petroleum market developments. Globally, consumer and technology sectors led, utilities and materials sectors were narrowly positive, and the energy sector fell sharply.

Index Data

  • The Dow Jones Industrial Average Index rose 2.86%.
  • The S&P 500 Index increased by 2.69%.
  • The NASDAQ Composite Index advanced by 3.66%.
  • The MSCI AC World Index, used to gauge global equity performance, increased by 1.67%.
  • The Barclays Global Aggregate Index, which represents global bond markets, fell by 0.37%.
  • The Chicago Board Options Exchange Volatility Index, a measure of implied volatility in the S&P 500 Index that is also known as the “fear index,” decreased in the month as a whole, moving from 14.03 to 13.33.
  • WTI Cushing crude oil prices, a key indicator of movements in the oil market, moved from $80.54 a barrel at the end of October to $66.15 on the last day in November.
  • The U.S. dollar was nearly flat against the euro, while it strengthened against sterling and yen. The U.S. dollar ended November at $1.25 against the euro, $1.57 versus sterling and at 118.69 yen.


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.

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