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December 2018
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National Non-Operating Observations
While U.S. economic indicators remain stable or positive, concerns continue about slowing growth across the global economy. Commodity prices and equities (which many investors view as leading indicators of economic activity) have underperformed this year, and the German economy (Europe’s largest) contracted in Q3 2018. Despite a tariff “standstill” announced between Presidents Trump and Xi at the G-20 meeting, market participants worry about the medium- and long-term impacts of trade tensions between the world’s two largest economies. Despite all this, U.S. fundamentals were largely unchanged in November. The unemployment rate held at 3.7 percent for a third consecutive month (its lowest since 1969), indicating that the labor market remains very tight. Many employers complain that a talent shortage is hindering growth plans, contending that it is increasingly difficult to find applicants with the right skill sets.
The 2018 U.S. midterm elections had little discernable impact on investment markets, as results hewed closely to pre-vote polling and market expectations. Markets were relatively quiet after a very volatile October. Stock markets across the globe were slightly higher: the S&P 500 was up 1.79 percent, the MSCI World Index was up 0.96 percent, and the MSCI Emerging Markets Index was up 4.06 percent. However, most indices are down for the year and below where they closed in September. Interest rates decreased slightly for the month, with U.S. Treasury rates down 0.10 percent and Municipal rates down 0.16 percent.
†3Q 2018 Bureau of Economic Analysis second estimate
*60/40 Asset Allocation assumes 30% S&P 500, 20% MSCI World, 10% MSCI EM, 40% Barclays Agg.

November 2018
Month Over Month Change (bps)
Year Over Year Change (bps)

GDP Growth
Unemployment Rate
Personal Consumption Expenditures
30yr MMD
30yr Treasury
Monthly Return on 60/40 Asset Allocation*
Non-Operating Assets
Volatility has been the key descriptor for capital markets in 2018. After sustained and broad-based increases throughout 2017, 2018 has seen three months with the S&P 500 down more than 2.0 percent, including October when it dropped 6.9 percent. Stocks were buoyed for several quarters by strong earnings growth from U.S. companies, but this narrative has started to reverse, with some firms reporting weaker performance and others starting to see impacts from global trade tensions. November was a relatively mild month for U.S. stocks, with the S&P 500 up 1.79 percent. World markets also had a positive month, with the MSCI World Index up 0.96 percent and the MSCI Emerging Markets Index increasing 4.06 percent, its largest monthly gain since January. However, both indices are down year-to-date and year-over-year, reflecting trade uncertainty, weak economic indicators, and currency concerns that have pushed major stock market indexes in several countries into bear-market territory. There also are concerns around the potential for a “no-deal Brexit,” and the potential downstream effects it would have on the broader European economy.
Long Term
Last Twelve Months
Long Term
Last Twelve Months
Non-Operating Liabilities
Capital markets borrowing levels, as approximated here by the ‘30-yr U.S. Treasury’ and ‘30-yr MMD Index,’ are dependent upon macroeconomic conditions, including inflation expectations, GDP growth and investment opportunities elsewhere in the market. The key measure to track is bond fund flows, as money moving into bond funds leads to more cash-chasing investment opportunities, boosting prices and reducing yields. Fund inflows generally are moderate and consistent over some time horizon. Fund outflows typically are large and sudden, as external events affect investor sentiment, resulting in selling bonds at lower prices and driving yields up.
After sizeable municipal fund outflows of $4.6 billion in October, negative flows continued in November, with $2.8 billion leaving the market. However, municipal rates decreased by 0.16 percent, following the decrease in U.S. Treasury rates (which act as the benchmark for U.S. borrowers). Short-term rates are up 0.09 percent since September and almost 1.0 percent over the past year, as the Federal Reserve has continued to raise short-term interest rates. The Federal Reserve is widely expected to increase rates 0.25 percent at its December meeting, and has intimated several interest rate increases for 2019 as well.
Long Term
Last Twelve Months
Long Term
Last Twelve Months
National Observations
National Observations
©2018 Kaufman, Hall & Associates, LLC
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