- The rally in the final week of November was insufficient to pull domestic equities out of the red for the month. International stocks lost more ground, driven by a slowing global economy and growing Eurozone crisis.
- Bonds had mixed results in November as the Treasury yield curve flattened slightly during the month. The Fed made no policy changes during their November meeting and will continue with “Operation Twist.”
- The economy grew at a moderate rate in the third quarter, while preliminary results point to a more robust fourth quarter. Price pressures receded in November, led by declines in energy.
- Moderate job creation continued in November, while the unemployment rate registered a steep drop to 8.6% as individuals continue to leave the workforce.
Wild card: an unknown or unpredictable factor
Our secular view for some time has been built in part on the expectation of a slow-growth environment accompanied by massive indebtedness, increasing regulation, and increased intervention by policymakers. Unsustainable levels of debt in various developed countries, including the United States, have resulted in a deleveraging process that could take many years to overcome. Reduced government spending will be the byproduct of the necessary austerity measures in many countries, while households continue to rebuild personal balance sheets challenged by the lasting repercussions of the Great Recession. Consumers are confronted with home values well below peak levels, comparably tighter credit, uncomfortably high unemployment, and a stock market that remains 20% lower than its October 2007 peak. Overall, the economy remains fragile, and still vulnerable to both exogenous shocks and even a cyclical downturn in the rate of growth. This becomes particularly worrisome when you throw today’s wild cards into the mix, as unknown or unpredictable factors could represent an exogenous shock that could leave a lasting imprint.