Monthly Market Update - November 2015

Acts of terrorism abroad disrupted international stock markets in November. International large value was the hardest hit returning ‐2.5%. A strong U.S. dollar and geopolitical stress continued to serve as headwinds for commodities and emerging markets which fell 7.3% and 3.9%, respectively. The U.S. stock market was a bright spot with large‐ and small‐cap posting positive returns. U.S. small cap rose 3.3%. Managed futures were not far behind at 2.1%.


  • The second estimate of third‐quarter real GDP growth came in at 2.1%, up from the initial estimate of 1.5%. The upward revision is a result of an increase to the estimate of private investment spending.
  • Inflation (CPI) was up 0.1% in the most recent month, bringing the year‐over‐year inflation rate up to 0.1%. Indexes for food, energy, and other items experienced moderate increases in October.
  • Job gains posted a strong result of 211,000 in November. The unemployment rate remained at 5.0%.


  • U.S. small stocks reigned supreme in November, returning 3.3%, with U.S. small value not far behind at 2.2%. U.S. large cap and large value stocks were relatively flat, returning 0.3% and 0.5%, respectively.
  • International stocks struggled in November, making an expansion of the quantitative easing (QE) program by the ECB more likely. International large value stocks performed the worst at ‐2.5% for the month. International small cap stocks were nearly flat at ‐0.3%.
  • Emerging markets were down 3.9% in November, pushing the asset class down to ‐13.0% for the year.


  • U.S. bond returns were held down in the face of the pending U.S. Fed rate hike. Short‐ and intermediate‐term bonds fell 0.1% and 0.3%, respectively.
  • International bonds were slightly positive at 0.4%.


  • REITs returned ‐1.5% for the month as housing starts fell 131,000. Commodities fell 7.3% last month amidst a strong U.S. dollar and decreased demand.
  • Managed futures returned 2.1% as trend following smoothed out in November.

International Stocks – It’s Time to Get Small

Concerns over a struggling Chinese economy, Greece, and the first pending U.S. rate hike in nearly a decade have all fueled the volatility that has flattened portfolio returns in 2015. Regardless, the outlook for 2016 is brighter than the last year would show, and having returned 8.3% year‐to‐date, international small cap stocks are already on the road to recovery. With strong tailwinds behind them, international small cap continues to be a vital piece of the allocation puzzle.

While QE in the U.S. is coming to an end, things are heating up in the Eurozone as the European Central Bank (ECB) recently announced it would extend its bond‐buying QE program into late 2016. This low interest rate regime of the ECB is good news for international small cap stocks, as valuations are elevated due to their potential for acquisition by larger firms hoping to take advantage of low borrowing costs.

Small cap valuations tend to receive a boost from investors in the early stages of economic recovery. Small cap stocks are usually concentrated in high growth sectors such as information technology which fare well as an economy begins its climb.

Coupled with QE in the Eurozone, the strength of the U.S. dollar versus the euro acts as a catalyst for local economic growth in the Eurozone. Goods priced in the euro cost fewer dollars to purchase (great news for European exporters!), and a higher level of economic growth provokes demand.

Taking these circumstances into consideration, international small cap stocks should not be overlooked in investors’ portfolios. Get out there and get small!

Sources: Bureau of Economic Analysis (BEA), Federal Reserve, Institute for Supply Management, JP Morgan, Morningstar Direct, Standard and Poor's, Wells Fargo, Yahoo! Finance, BofA Merrill Lynch,

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