The 1% Market Move: 11/28/2018

The Bottom Line
  •  S&P 500 up +2.30%
  • Stoxx Europe 600 flat 0.00%
  • Shanghai Composite Index up +1.05%
So What Happened?

U.S. stocks increased for the third straight day, as the S&P 500 gained 61.61 points, or +2.30%. Today’s gain marks the largest single-day increase since late March. With this week’s three-day advance, the S&P 500 now sits at a 2.62% return year-to-date and is slowly digging its way out of correction range (it now sits at a -5.84% return over the past three months, whereas at the end of last week it was right at the -10% threshold).

The main driver of today’s market advance was “dovish” commentary from Federal Reserve Chairman Jerome Powell regarding the future path of its interest rates. Central to our tenet of writing this market commentary in plain English, the term “dovish” is Wall Street-speak for the Fed hinting it will not raise interest rates. On the other hand, you may also hear the Fed being referred to as “hawkish”, which means it is hinting it will raise interest rates. So far this year the Fed has mostly been referred to as “hawkish” given signs that economic activity in the U.S. has picked up at paces not seen since before the 2008 recession. As we’ve said before, it seems counterintuitive that a strong economy would be interpreted in a somewhat negative light by Wall Street. The thinking, however, is that a hotter U.S. economy will lead to higher inflation, which in turn would force the Fed to increase interest rates in an attempt to “cool off” the economy. In general, higher interest rates mean less economic activity because it is more expensive to borrow money.

So what did Chairman Powell say specifically to placate the market today? To paraphrase, Powell said he believes interest rates are “just below” the level at which economic activity is neither stimulated nor stunted. If this were Goldilocks, Wall Street is interpreting this to mean interest rates are “just right” and the Fed will back off (or stop altogether) future interest rate hikes. Of course, only time will tell because the Fed will never outright say what it plans to do ahead of time. In fact, it wasn’t that long ago Powell hinted interest rates were a “long way” from neutral status. All said, while it is certainly nice to see the market on a winning streak we take this news with a grain of salt as the market is likely to be sensitive to any commentary that insinuates interest rates will instead go up.

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The S&P 500 is a market capitalization weighted index of 500 leading U.S. companies and one of the most common benchmarks for the broader U.S. equity markets.

The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The Nasdaq Stock Market. Launched in 1971, the NASDAQ Composite Index is a broad based Index. Today, the Index includes over 3,000 securities, more than most other stock market indices. The NASDAQ Composite is calculated under a market capitalization weighted methodology index. To be eligible for inclusion in the Composite the security’s U.S. listing must be exclusively on the Nasdaq Stock Market (unless the security was dually listed on another U.S. market prior to January 1, 2004 and has continuously maintained such listing), and have a security type of either: American Depositary Receipts (ADRs); Common Stock; Limited Partnership Interests; Ordinary Shares; Real Estate Investment Trusts (REITs); Shares of Beneficial Interest (SBIs);
Tracking Stocks
Security types not included in the Index are closed-end funds, convertible debentures, exchange traded funds, preferred stocks, rights, warrants, units and other derivative securities.

If at any time a component security no longer meets the above eligibility criteria, the security is removed from the Composite Index.
The Stoxx Europe 600 is a subset of the STOXX Global 1800 Index. With a fixed number of 600 components, the STOXX Europe 600 Index represents large, mid and small capitalization companies across 17 countries of the European region: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.

The Shanghai Composite Index is a market capitalization weighted index made up of all the A-share and B-shares that trade on the Shanghai Stock Exchange.

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