Allianz Investment Management LLC November Market Update

Key points from AIM’s November 2019 market commentary

As expected, the Fed decided to cut the Fed funds target to a range of 1.50% to 1.75%.

The major event of the month was the Fed meeting and resulting Fed statement and speech from Fed Chairman Powell. Initial market reaction was minimal as most of the commentary from Fed officials leading up to the meeting offered little pushback to another rate cut, ultimately leading investors to price in a high probability of the cut happening before it actually occurred. While this rate cut was the latest installment on a series of cuts to sustain the economic expansion, most investors were keenly interested in whether or not this was the end to the Fed’s insurance rate cuts. Without explicitly stating, the Fed appears to be on hold from cutting rates further in the near term as some of the downside risks that provoked the series of rate cuts look to be somewhat contained.

Equities reached higher highs in October with both the S&P 500® and NASDAQ indices reaching new record highs.

Both indices surpassed their highs from this past July. Continued momentum on trade discussions between the U.S. and China coupled with better than expected corporate earnings pushed equities higher. Given the economic backdrop and progress on the trade front we expect equities will continue to move higher sans any unexpected market turmoil.

The widely watched spread between the 3-month and 10-year Treasuries turned positive, indicating that the curve is no longer inverted for the first time in months.

This is important as it suggests the likeliness of a near-term recession has declined slightly. Overall, we still expect the 10-year Treasury to remain within our forecasted range at year-end as the probability of additional easing is unlikely and trade tensions appear to be simmering. 

Christine Lagarde officially took over as president of the European Central Bank, joining other global central bankers as they weigh policy decisions against an uncertain market backdrop.

Across the pond, Mario Draghi officially passed the torch over to Christine Lagarde, who began her new role as president of the European Central Bank (ECB). Unfortunately for Largarde, she faces a much divided ECB as just last month the members agreed to resume government bond purchases despite one-third of the voters opposing the action, marking the largest dissent in Draghi’s tenure. As such, investors will be patiently waiting to see if Lagarde is able to corral the ECB members in an effort to obtain a consensus view on policy going forward. Nevertheless, it’s evident that global central bankers will have their hands full as they weigh policy decisions against an uncertain market backdrop.

Overall, we remain optimistic about the market environment as we move closer towards year-end.

Supporting this view has been the better than expected economic data and corporate earnings releases, which have reduced fears of a near-term economic recession. Furthermore, we suspect consumer strength will continue to offset weak business investment, especially given the most recent labor report. Additionally, the Fed followed through with an additional rate hike this month that should help to support the ongoing expansion. That being said, we do remain cognizant of the risks to this view, which include further deterioration within the manufacturing sector, the trade dispute between the U.S. and China reigniting, and weakening of the labor market which would negatively weigh on consumer sentiment.

Get the full November 2019 Market Update here.

The views expressed above reflect the views of Allianz Investment Management LLC, as of 11/2019.These views may change as market or other conditions change. This report is not intended and should not be used to provide financial advice and does not address or account for an individual's circumstances. Past performance does not guarantee future results and no forecast should be considered a guarantee either. Allianz Investment Management LLC is a registered investment advisor that is a wholly owned subsidiary of Allianz Life Insurance Company of North America. Allianz Life Insurance Company of New York is also a wholly owned subsidiary of Allianz Life Insurance Company of North America.

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