Markets Not Very Thankful

Last week was a tough Thanksgiving week for domestic stock markets. The S&P 500 dropped 3.79% and the Dow continued its recent slide, losing 4.44%. International Stocks also declined, but posted a smaller 1.12% loss, while the U.S. Aggregate Bond Index gained a slight 0.03%. Once again, portfolio diversification helped to cushion losses.

Reading these results may feel quite unpleasant and elicit concerns about what is ahead. As is often the case, the story behind the numbers can help us understand the complexity, and possibly what this performance means.

Why did stocks drop?

Plummeting oil prices were one of the biggest drivers behind the market's losses, as investors worried that too much oil is available. These concerns have contributed to oil experiencing seven weeks of losses in a row and dropping more than 20% so far this month. 

While oil was a key focus last week, many other details were also on investors' minds. Major tech companies continued to struggle and posted sizable stock price losses for the week. In addition, the markets still don't know how the Brexit deal, political challenges in Europe, and ongoing trade tension will all work out. 

Examined together, these challenges can create headwinds for global growth, so it is important to see how and when they are resolved. 

Will the market losses continue?

No one can predict the future, but a few data points and perspectives can help deepen understanding of the current environment. Currently, the following two details are among the important takeaways from last week:

    1. Trading was light last week: The days before and after Thanksgiving had trading volume that was much lighter than normal, which often happens during this time period. This lower volume can exacerbate pricing trends, such as the declines we saw with oil. As a result, Friday's performance may be less significant than it seems on the surface. 

    2. Black Friday shopping was strong: Brick-and-mortar stores had people lined up for discounted buys, and online purchases were 28.6% higher than in 2017. The holiday season is very important for retailers, and these initial results indicate consumer spending may remain strong through year's end. 

In the coming weeks, we will gain a clearer understanding of many market influences. President Trump and Chinese President Xi are scheduled to meet this week at the G20 summit to discuss trade. Right now, the markets may be assuming these talks won't solve the trade tension and that an economic slowdown could be ahead. Investors may also doubt whether oil-producing countries can slow production fast enough to counter reduced demand.

Some statistics indicate we are experiencing a disconnect between what investors are feeling (very pessimistic) and what is truly happening in the domestic economy (mostly positive). As a result, if some of the market concerns can get resolved constructively, global markets could experience a relief rally, especially if consumer spending continues during the holiday season.

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