1. The U.S. equity market continues to outperform.
In October, the U.S. equity market, as proxied by the S&P 500 Index, declined near 1% but still outperformed non-U.S. markets. The multi-year trend of U.S. outperformance remains intact.
This chart shows the performance of SPY (SPDR S&P 500 Index ETF in blue), EFA (iShares MSCI EAFE ETF in purple), and EEM (iShares MSCI Emerging Markets ETF in orange).
This chart shows the performance of SPY (SPDR S&P 500 Index ETF in blue), EFA (iShares MSCI EAFE ETF in purple), and MCHI (iShares MSCI China ETF in red).
2. By the end of October, the ten-year U.S. Treasury yield had risen 64 bps post the Federal Reserve cutting the Federal Funds Rate target by 50 bps.
The optimistic interpretation is the Federal Reserve has not only facilitated a soft landing but has given a boost to economic growth. If the ten-year yield continues to rise it will be a concerning sign that the bond market is losing faith in the Fed’s inflation fighting credentials.
Source: treasury.gov, Two Centuries Investments
3. Inflation continues to moderate, but we need to observe an extended period of low inflation to be certain the inflation genie is back in the bottle.
The “core” inflation rate (CPI excluding food and energy) has continued to creep down but also remains over 1% above pre-pandemic levels. Second waves of inflationary pressure are also not uncommon throughout history. The Atlanta Federal Reserve Bank’s measure of “sticky price” inflation (think rent, insurance and medical care) is still running at a 4% annual rate.
4. As we write this update, the dust has settled regarding U.S. government elections but there is still plenty of fog clouding the picture of investment implications. We will provide more insights in next month’s update.
Thus far, through November 15, financial markets have crowned U.S. equities as the winner.
