November market commentary
Eugene Yashin

Market Overview

We believe fundamentals drive long-term returns. Despite some ongoing worries about the pace of global growth, we think fundamentals supportive upside potential for investor. Stay positive and keep a long-term prospective!

US Economics, Trade Deal and Brexit

US economy finds itself in good shape, although jobs, non-manufacturing activity, business investment, and retail spending are less robust than at the beginning of 2019. Inflation is still subdued and below the Fed’s preferred 2% target. Housing is solid, lifted by lower mortgage rates. However, consumer spending is slowing, especially at department stores, and manufacturing activity is weak. Balancing things out, the possibility of a recession is still low. Even if one does happen next year, we believe it should be mild. Better global trade and Brexit prospects and third-quarter earnings that are exceeding expectations, provide necessary optimism for the markets. According to Professor Jeremy Siegel,the market will welcome any deal with China. We seem to be moving in that direction. There are also encouraging signs that the United Kingdom and Europe are making progress on a Brexit package—and that lifted European markets and stocks tied to their local economy. All eyes will be on news of a trade deal and Professor Siegel believes we will scale to new highs in the S&P 500 if a deal becomes reality.

Global Economics

Geopolitical risks diminished recently. Most notably, no-deal Brexit risks have faded with the agreement struck between PM Johnson and the EU. With the politician who had been pushing hardest toward no-deal now committed to a deal, the UK and EU will likely enter an extended transition period sustaining much of the status quo. A pause in the US-China trade conflict is also a positive development although it remains unclear whether an agreement will be reached. Removal of the threat of damaging sanction through a US-Turkey agreement lowers the risk of a further deterioration in Turkey’s economic outlook. This news will not immediately reverse the damage to business sentiment from political conflicts, which is large and has intensified since midyear. As a result, a material drag on global economic growth remains in the pipeline. According to JP Morgan the expansion can weather this storm. But this view needs to be stress-tested against incoming news that global growth has slowed to a sub-par pace as drags broaden to consumer spending and service sector activity. In addition to the reported slowing in China GDP growth to 5.5%, JP Morgan lowered their 3Q19 forecast for Japan into negative territory while reducing tracking of US growth below 1.5%. With drags broadening and business sentiment still depressed, global growth will likely remain sub-par for some time to come—even if the prospects have increased that geopolitical threats will eventually fade.

Regime Change – It is Official

Per Empirical Research Partners, their regime indicator, that’s designed to predict the stylistics bias of the equity market, has shifted to a neutral stance from a growth-tilted one. It’s been on the cusp of making that change for a couple of months. The headwinds faced by those making value bets have diminished somewhat and the opportunity set is better than average. Empirical’s valuation spreads sit one standard deviation above their norm. Value stocks have struggled in this decade. unlike in the 1970s through the 1990s. The rise of the value style coincided with that of the Baby Boomer generation, that created upside surprises. In addition, in the last five years the enormous free cash flow generation of the Big Growers has represented a tough comparator. If you look at Value versus Growth and Equal versus Cap Weighted 1-Year return spreads below, you will see this shift is easily observable. What is interesting is how well correlated (move in the same direction) both time series are. Should a Value regime become sustainable – one would expect a broader market representation outperform a tight group of Large Cap Growers which are traded at substantial premium to the market.

Value vs. Growth and Equal vs. Cap Weighted 1-Year Return spreads (Source – Signet FM):

The information and opinions included in this document are for background purposes only, are not intended to be full or complete, and should not be viewed as an indication of future results. The information sources used in this letter are:, Jeremy Siegel, PhD (, Goldman Sachs, JP Morgan, Empirical Research Partners, Value Line, Ned Davis Research, Citi research and Nuveen.


Past performance may not be indicative of future results.

Different types of investments and investment strategies involve varying degrees of risk, and there can be no assurance that their future performance will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.

The statements made in this newsletter are, to the best of our ability and knowledge, accurate as of the date they were originally made. But due to various factors, including changing market conditions and/or applicable laws, the content may in the future no longer be reflective of current opinions or positions.

Any forward-looking statements, information and opinions including descriptions of anticipated market changes and expectations of future activity contained in this newsletter are based upon reasonable estimates and assumptions. However, they are inherently uncertain and actual events or results may differ materially from those reflected in the newsletter.

Nothing in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice. Please remember to contact Signet Financial Management, LLC, if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and/or services. No portion of the newsletter content should be construed as legal, tax, or accounting advice.

A copy of Signet Financial Management, LLC’s current written disclosure statements discussing our advisory services, fees, investment advisory personnel and operations are available upon request.

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