Noteworthy Numbers

4.53

 The Bloomberg US Aggregate Bond Index was positive 4.53% in November, the best monthly return for the bond index since 1985. 

52

The S&P 500 technology sector is now positive by 52% year-to-date as the sector has benefited from an Artificial Intelligence push and a recent pullback in interest rates. 

3.01

The Federal Reserve’s preferred inflation metric, the Personal Consumption Expenditures Price Index (PCE), came down to 3.01%. This is the lowest PCE reading since March of 2021.

Our Take

By Bobby Moyer, Advisor & Sandy Wiggins, Managing Director

November was a very positive month for the financial markets and ended up being the strongest month of the year for both the stock and bond markets. The S&P 500 broke out of its 3-month losing streak and finished the month positive by 9.13%, its strongest monthly return since July of last year. The strength of the market was not limited to Large Cap stocks as the S&P Mid Cap 400 Index and the S&P Small Cap 600 Index both posted strong returns with the Mid Cap Index up 8.5% and the Small Cap Index up 8.3% for the month. The tech-heavy Nasdaq also had a great month, returning 10.8%, and is now positive by 37% year-to-date. International Stocks also performed well with the MSCI EAFE, an index of developed international markets, being positive by 9.3% and the MSCI Emerging Markets Index positive 8% for the month.

When looking at the US sectors that make up the S&P 500, technology led the way, returning 12.9% for the month and is now positive an astounding 52% year-to-date. Real Estate also had a strong month, posting a return of 12.5% after being a sector that had struggled for most of the year due to higher interest rates. The Financial and Consumer Discretionary sectors also posted strong returns of over 10% for the month. Energy was the lone negative sector for the month and was down by 1%.

As discussed in the previous 2 paragraphs, the stock market posted some great returns in November but what the bond market returned is probably even more impressive. The Bloomberg US Aggregate Bond Index was positive 4.53% for the month, its best single monthly return since May of 1985. The Index is now positive 1.6% for the year after coming into the month of November negative by 2.77%. The Bloomberg US Corporate High Yield Bond Index was also up 4.53% for the month of November and is now positive by an impressive 9.37% year-to-date.

So after several months of negative returns, it is interesting to investigate what changed the negative momentum and sentiment of the market. A major contributor to the turnaround was interest rates coming down off their high-water mark back in October when the 10-year treasury rate flirted with 5%. Coming into November, the 10-year began the month at 4.77% and came down to 4.37% by the end of the month. This large drop in rates was a huge tailwind for bonds which led to an outsized return by the Index. This also helped in pushing stocks higher, especially tech stocks as they are very susceptible and negatively impacted by higher interest rates.

Another reason for the rally is the expectation that the Federal Reserve is done with their rate hiking cycle and that there may be rate cuts as early as the first quarter of 2023. As the chairman of the Federal Reserve Jerome Powell has constantly said, they remain dependent on the data for their interest rate policy. But the data on the inflation front has been positive recently as the Fed’s preferred inflation measurement, the Personal Consumption Expenditures Price Index (PCE), came down to 3.01% in the latest reading. This is the lowest PCE inflation number since March of 2021. Furthermore, the price of oil (WTI Crude) has also come down from $94 per barrel where it hovered as recently as September 27^th to under $75 per barrel by the end of November.

The economy continues to remain resilient as GDP in the third quarter was revised up to 5.2% and the predicted recession of 2023 has failed to materialize as we head into the final quarter of the year. The unemployment rate remains at a low 3.9% and consumer spending remains strong as shown by the recent Black Friday and Cyber Monday numbers.

So, what can we take away from the extraordinarily strong month of November? The S&P 500 was on a 3-month losing streak and the Bloomberg US Aggregate Bond Index was on a 6-month losing streak coming into the month. Sentiment and momentum were negative for both stock and bond investors, yet both asset categories had outsized positive returns for the month. If you had pulled out of either the bond or stock market based on fear and emotion based on the previous several months of returns, then you would’ve missed the best month of the year for both stocks and bonds. As we constantly say, it is important to create a portfolio specific to your needs, goals, and risk tolerance and to stay the course even during down periods so you don’t miss out when positivity returns.