Global Markets Elevate – Equity Review

Domestic equities finished November with gains not seen since the summer.

Optimism surrounding U.S.-China trade discussions helped fuel equities higher, with technology, health care, and financials as the leading sectors in November.

The absence of volatility, along with the Fed maintaining a steady rate environment, was also a catalyst for equities to climb in November. Stock market volatility, as measured by the VIX Index, dropped to its lowest levels since April.

U.S. equity markets have outperformed international equities over the past two years so far. Historically, a lower U.S. dollar has benefited international stocks, as well as help increase exports of U.S. products worldwide. (Sources: U.S. Commerce Department, Bloomberg)

Looks Like QE But It’s Not Says The Fed – Fixed Income Overview

The Federal Reserve is slowly re-expanding its balance sheet by currently buying $60 billion of Treasury bills each month. Reminiscent of the Fed’s Quantitative Easing (QE) program, meant to stimulate economic activity, the Fed denies that it is QE, but rather just a buffer for any possible bond market volatility.

Interest rates are believed to have stabilized for the time being, as the Fed has essentially placed a hold on raising and lowering rates until further notice. The yield on the 10-year treasury bond ended November at 1.78%, essentially where it’s been for the past two months.

The presidential race is promoting bond buyers to consider municipal bonds in order to hedge against any possible increase in tax rates. The tax free interest generated by municipal bonds has historically been a benefit for certain investors in the higher tax brackets. (Source: Federal Reserve)

Presidential Candidate Tax Proposals Influence Voter Turnout – Politics In Review

Taxes and income inequality have become a primary agenda topic for several presidential candidates. Various proposals from the candidates include repealing the Tax & Jobs Act, removing the step-up basis for inherited assets, increasing capital gains tax, imposing a financial transaction tax, and eliminating the tax deduction for mortgage interest on a second home.

Presidential election voter turnout is tracked by the Bipartisan Policy Center, which monitors voter turnout state by state. The 2016 presidential election saw an estimated 55% of the voting age population (VAP) turn out to vote. Who actually turns out to vote can be driven by the candidates’ policies and how it may affect individuals. The number of voters has varied over the years and has always been very difficult to predict. (Source: Bipartisan Policy Center)

U.S. Agricultural Exports To China Decline – Trade Policy Review

China is the largest export market for U.S. agricultural products, with over $28 billion of exports in 2017. Agricultural exports to China have steadily increased over the past few years, with a 700% increase from 2000 to 2017.

Agricultural products exported to China include soybeans, cotton, pork, corn, and wheat. Soybeans account for the single largest agricultural export, representing over 50% of China’s soybean imports in 2017 alone.

Fallout from the trade disputes have recently given other countries the opportunity to capture agricultural market share from the U.S. Agricultural producing countries including Brazil, Australia, Canada, and Ukraine, which have all been able to increase exports to China as U.S. exports have fallen. The risk to U.S. exporters is that these alternate suppliers may take permanent market share away from the U.S.

Demand for U.S. exports may also be affected by slowing global growth. The IMF is estimating a 3% growth rate for the global economy in 2019, a drop from 3.6% in 2018. Among those countries expected to see a decline in growth are China, Japan and the United States. China’s forecast is primarily due to trade tensions and a drop in exports. India continues to grow at a favorable rate among both the emerging and developed economies.

(Sources: U.S. Department of Agriculture, IMF)