On the backend of the steep October drawdown, November started off with the uncertainty of the midterm elections. While there were expectations of a “Blue Wave”, the Democrats took the House and Republicans held the Senate. While the split legislature may cause some frictions regarding domestic policy, both parties seem to be on the same page regarding improving global trade policies.The Fed, as expected, kept rates unchanged in November raising the likelihood of a 4 th rate hike in December. Following two consecutive down weeks in the middle of the month, November managed to build some positive momentum in the final week to post 2.04% to end November and raise the year-to-date for the S&P 500 Index to 5.11%. Markets were helped upward following Chair Powell’s late November speech which came across as more dovish compared to his October statements.His statements highlighting the Fed’s strong outlook for the economy also gave the market some confidence that the Fed may take a less aggressive stance on raising rates than previously thought. Trade concerns were in focus leading up to the G-20 Summit in Argentina with both the USMCA signing and the Trump-Xi meeting scheduled to occur that weekend.3 rd quarter preliminary labor productivity came in at 2.2%, above the survey estimate and 3 rd Quarter GDP was confirmed at 3.5%. Changes in payrolls also came in above their October survey estimates at 250k (vs 200k) and 246k (vs 195k) for Nonfarm and Private payrolls. However, the November announcement by GM to reduce its workforce by 15% has sent some shocks to the affected regions of Ohio, Michigan, and Maryland. The final November initial jobless claim report rose to 234k from 224k.Looking over the last 12 months, the VIX has moved to an elevated level since October, trending on average around 19.37 versus 14.67 for the earlier 10 months. While U.S. market volatility is becoming more evident in the U.S. equity market, other equity markets continue to lag the U.S.The MSCI EAFE Index has been underperforming the U.S. year-to-date, posting a -0.11% in November to bring the YTD index down to -8.96%. While the MSCI Emerging Markets Index was up 4.13% in November, the index is still down -11.96% year-to-date. With Brexit fast approaching on March 29, 2019, Parliament will vote on Prime Minister May’s unpopular Brexit withdrawal agreement on December 11. The most unfavorable of the negotiated items is the agreement is the £39bn “divorce bill”. The MSCI UK Index finished November down -1.51% in GBP terms.The U.S. yield curve has continued to flatten, as measured by the 2yr-10yr spread, with 19bps separating the two. High-Yield credit spreads have also risen over the last two months, causing some recent headwinds for high yield debt. Oil prices were down 22.02% in November and down 33.35% from the October 3, 2018 peak. With high oil inventories and the collapse in price, OPEC meets in December to agree on production levels. This, however, is counter to the President’s view on keeping oil prices low. The oil futures curve has shifted from backwardation to contango which may cause some headwinds for futures-based oil strategies.Of the 8 hedge fund strategies tracked 1 , only Merger Arbitrage strategies performed positively in November.Related: Beware the “Known-Unknowns”
