Global stocks surged higher in November on increased investor expectations for a U.S.-China trade deal and an extended period of Federal Reserve restraint following so-called “insurance” interest rate cuts.  A strong start to the holiday shopping season also lifted investor spirits and bolstered projections that consumer spending will sustain solid U.S. economic growth. Although largely a defensive sector, healthcare services stocks received a boost from better-than-anticipated earnings guidance and moderating stances on Medicare for All by key Democratic candidates pursuing the U.S. presidency.  On the other hand, bond proxies (i.e., utilities, consumer staples, and real estate) trailed overall market performance as fixed income yields recovered from August 2019 lows. Global monetary and fiscal accommodation, which is expected to continue into calendar 2020, provide a favorable backdrop for economic growth and equity appreciation looking forward. Although a U.S.-China trade deal, even if less than ideal, could provide a positive catalyst for equity markets and unleash pent-up capital expenditures, the 2020 U.S. presidential election will likely receive a disproportionate amount of investor focus vis-à-vis past elections and contribute to elevated financial market volatility. We continue to believe in the merits of a “barbell” strategy – i.e., balancing pro-growth cyclicals with more stable, visible growth companies. We continued to shift to a slightly cyclical bias in November in anticipation of a recovery in global manufacturing PMIs in 2020, adding to selected capital goods and technology stocks that corrected in previous months due to trade concerns.

For more details, including a longer discussion of health care stocks, please see Sit Investment Associates’ October 2019 Global Investment Outlook and Strategy paper. Click here: Global Outlook and Strategy (Adobe Acrobat) or e-mail us at: siainfo@sitinvest.com.