by Paul Eitelman, Russell Investments
On the latest edition of Market Week in Review, Director and Senior Investment Strategist Paul Eitelman and Research Analyst Laura Bardewyck discussed the latest global economic data releases as well as recent geopolitical developments. They also reviewed Novemberâs strong performance in global equity markets, including the outperformance of the value factor relative to the growth factor.
Global growth plateaus amid rise in COVID-19 cases
In general, newly released economic data from around the world points to signs of a slowdown in growth, Eitelman observed. Case-in-point: the November U.S. employment report, he said. The latest survey from the Bureau of Labor Statistics, published Dec. 4, showed that the U.S. economy added 245,000 nonfarm payrolls last monthâdown from 610,000 additions in October.
âThis number represents a pretty marked deceleration, although itâs important to note that itâs still reflective of positive growthâalbeit at a much slower pace,â Eitelman remarked. Digging into the details a bit further, he said that the report captured broad weakness on the services sideâparticularly in the leisure sector, which has been hammered by COVID-19 lockdowns this year. All told, the latest snapshot of the U.S. labor market offers up some early evidence that the resurgence of the coronavirus is taking a bit of a toll on the nationâs economy, Eitelman stated.
Broadening his focus to a global scale, he noted that while recent European retail sales numbers demonstrated resilience, global PMIs (purchasing managersâ indexes) largely showed a plateauing in growth. While the manufacturing sector held up reasonably well, the latest surveys showed that the services sector is deceleratingâespecially in Europe, where more significant lockdown measures were imposed last month, Eitelman said.
The slowdown in global growth due to increasing COVID-19 infections is not too surprising, he remarked, adding that the team of Russell Investments strategists remains positive on the medium-term outlook. âWhile there are some notable challenges in the short term, the six-to-12 month outlook continues to look more favorable, especially given the recent slew of positive vaccine announcements,â Eitelman explained.
U.S. fiscal stimulus talks resume, Brexit trade deal discussions continue
Switching to geopolitical news, Eitelman characterized the latest U.S. fiscal-stimulus negotiations as encouraging. On Dec. 1, members of Congress proposed a $908 billion bipartisan stimulus package, which was quickly supported by Democratic leaders in the House of Representatives and the Senate, he said.
âThis proposal looks to be a starting point for kicking off negotiations, and while another round of COVID-19 relief isnât a slam dunk, the probability of additional fiscal stimulus as early as the end of this year has definitely increased,â Eitelman stated. If anything, Novemberâs weaker-than-expected jobs report is likely to add a bit more urgency to the talks, he noted.
Turning to Brexit, Eitelman said that negotiations between the UK and the European Union on a post-Brexit trade deal are coming down to the wire. âThe current trade agreement expires Dec. 31, and right now, there are some thorny complications around issues like fishing rights that are making a compromise difficult,â he observed.
Given the sensitivity of large cap UK equities to the British pound, the situation warrants close watching in the UK, Eitelman said, adding that the impact on global financial markets will likely not be too meaningful.
Shifting his focus to the Asia-Pacific region, he noted that a trade spat recently broke out between China and Australia, after China announced tariffs in excess of 200% on Australian wine. âGiven that tensions between the two nations have already been running high the past few months, this latest move doesnât appear to be a major issue for markets right nowâbut it will be an important watchpoint moving forward, especially if we start to see some back-and-forth retaliatory measures,â he said.
A November to remember: Global equities rise 12% in exceptionally strong month
Eitelman wrapped up the segment with a look back at equity-market performance during November, which was particularly strong on a global scale. âThe MSCI World Index ended the month up approximately 12%, which is one of the strongest monthly performances ever for global stocks,â he stated, characterizing the performance as outstanding.
Cyclical sectors of the market did especially well during November, Eitelman noted, with the strongest regional performance coming from Europe and the UK. This was because these regions tend to be more cyclically geared, with higher levels of exposure to sectors such as financials, industrials and materials, he explained.
Digging into the numbers more, Eitelman noted that within each individual regional equity market, smaller cap and value-oriented stocks tended to be the strongest performers. The Russell 2000Âź Value Index, for instance, outperformed the Russell 1000Âź Growth Index by 9.1% in Novemberâa significant spread, he remarked.
âAt Russell Investments, weâve been talking for a long time about how extreme the relative valuation opportunities were in favor of value securities, so itâs nice to see this bounce-back, coming on the heels of the recent favorable vaccine news. All in all, it looks like weâre seeing a bit of a transition in markets from a stay-at-home trade narrative to a reopening trade narrative,â Eitelman concluded.
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