Strong November returns helped solidify what has been an exceptional year for the US stock market. Retail sales rebounded, and although third-quarter earnings were not all merry and bright, most topped expectations.

In the headlines, trade deal expectations continued to loom large, and while it’s certainly not a foregone conclusion, expectations are that a Phase 1 agreement will be reached.

Finally, after cutting interest rates three times this year, the Federal Reserve appears to be finished with its rate cut campaign. Minutes from the October policy meeting suggested the Fed was unlikely to lower rates any time soon given what it sees as a solid US economy anchored by a healthy labor market and strong consumer spending.1

US equities

The market hit multiple record highs throughout the month, while the S&P 500® posted six straight weeks of gains for the first time in more than two years. Small cap stocks surged, returning 4.12% in November.

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Information technology, financials, and healthcare led sector performance. Financials advanced amid easing short-term rates and hope for a more favorable yield curve shape. Healthcare gained amid some clarity on the political front, particularly after democratic candidate discussions surrounding aggressive policy reform softened,2 while industrials and information technology rose amid renewed optimism about a trade deal.

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International equities

On the international front, pro-democracy demonstrations in Hong Kong added unease to US-China trade negotiations, further delaying the completion of a Phase 1 trade deal.

Emerging and developed markets moved in lockstep, with both lagging US markets considerably. This has been the trend all year as equity investors seem to prefer the relative safety of US stocks despite more attractive valuations overseas.

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Fixed income

There was no meaningful change in the shape of the yield curve. The spread between the 2-year and 10-year Treasuries remained consistent with a 15-basis-point differential and signaled a continuing ease in recession fears.

Munis showed relatively strong performance for the month, outperforming the broad taxable bond market amid political uncertainty and continued positive supply-demand dynamics.

Corporate bonds were positive for the month, as investors embraced some risk in their search for yield.

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Looking ahead

With one month left in 2019, it’s a good time to reflect on the state of the market and opportunities in the new year.

  • Rotation into quality. Equity fundamentals can become more important in a late-stage economy. Investors may emphasize stocks with the potential to grow earnings and dividends, rather than pursue a “growth at all costs” mindset.
  • Shorter-term fixed income? With the Fed unlikely to cut rates again in the near future, fixed-income investors may look to shorter-term bonds to pick up some modest yield while hedging against equity market volatility.
  • Maintain the course. Time and again we have stressed the importance of a broadly diversified portfolio. Perhaps now more than ever, long-term investors should remember that patience and consistency are critical factors in building wealth.

Bottom line

Even if the market continues to climb, a rising tide may not lift all boats. Investors should make sure to do their homework.

Thanks for reading, and we’ll talk to you again next month.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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