- Markets close in strongest month since July 2022
- Rates fell the most since 2019
- soft landing in sight
They say the rains of April bring flowers in May, but are the eight rains of November appropriate for December? There is a reason why I did not pursue a career in poetry. Still, poetic skills aside, there is historical precedent that an 8% gain in November sets up the rest of the year for even more gains. On Thursday, the market closed its strongest month since July 2022.
Despite being down 0.2% on the day, the Nasdaq Composite closed the month up 10.7%. The S&P 500 rose 0.4% on Thursday and about 9% for the month. According to FactSet, when the Nasdaq rises 20% or more during November, it maintains that pace 67% of the time through December, with an average gain of more than 3.5%. The S&P closes even more frequently in December, 75% of the time, with an average gain of about 2%. Although past performance is not indicative of future performance (just ask my wife), there is cause for optimism as we enter the last month of the year.
Some of the market rally can be explained by actions in the bond market. Throughout November, we saw a decline in yields. The rate on the benchmark 10-year note fell to 4.35% from 5% in late October. This was the biggest fall in rates since 2019. The tech-heavy sector of the market is traditionally more dependent on borrowing money to finance growth and hence, a fall in rates could have a clear impact on the bottom line.
If we follow the story further, we will see that the reason for the fall in interest rates is the reduction in inflationary pressure. Oil, one of the biggest inflation drivers, fell more than 6% in November. Crude oil prices have fallen nearly 20% since hitting a high of $95 in September. Oil prices fell more than 2.5% on Thursday alone. The decline came despite news that OPEC+ members would cut production by one million barrels a day.
The low level of inflation was also evident in Thursday’s personal consumption expenditure (PCE) report. Core PCE prices, which exclude food and energy, came in line with forecasts. Prices increased by 3.5% on a year-on-year basis. Month-on-month, prices rose only 0.2%.
At this point, you have to start giving the Fed some credit because it appears they have made amazing progress in navigating the soft-landing that many feared was impossible. The Fed appears to be moving toward a withdrawal of monetary policy equivalent to the 1969 moon landing. We won’t celebrate until Neil Armstrong gets out of the capsule and walks away, but the landing gear is being lowered. Although it may take up to a year for interest rate hikes to make their way into the economy, the full impact of the recent hikes has yet to be fully felt; However, as we approach the last month of the year, there is reason to be optimistic.
Some individual stocks I’m watching today include Dell, Disney, Pfizer, and Tesla. Dell reported earnings that missed estimates, sending the stock down 5% in premarket trading. Activist investor Nelson Peltz has launched a proxy battle with Disney in hopes of gaining several seats on the board of directors. Pfizer announced that they would be stopping trials of their weight loss pill because the side effects proved too significant to proceed with further testing. At last, Tesla began deliveries of its long-delayed Cybertruck on Thursday. Analysts estimated the truck’s price to be around $61,000. Tesla shares, along with Pfizer’s, are trading lower in the premarket, while Disney’s are slightly higher.
Ultimately, the more things change, the more they stay the same. The S&P 500 closed November at 4567.80. If you go back to November of 2021, the S&P 500 closed at 4567.00 As we enter the last month of the year, hopefully we can see a repeat performance from December of 2021 when the S&P gained about 4.5% Added profit and closed. that year. As always, I will stick to your investment strategy and long-term plans.
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