November Market Review

November Market Update

Much like the Thanksgiving meal itself, November had a dish for nearly every appetite. Major market indices nearly reached or surpassed the year-to-date peaks seen at the end of the second quarter after a four-week rally.

The perfect combination of good data and “bad” data created this ideal concoction. On a positive note, the inflation rate, according to the Consumer Price Index, was tallied at 3.2%, far lower than its recent high of more than 9% in June 2022. The other side of the equation, however, revealed a softer than expected economic performance, resulting in the S&P 500 recording its longest streak since 2021: eight consecutive days of gains. This led many to believe that the Federal Reserve (Fed) would decline to raise its benchmark interest rate another tick.

Raymond James Chief Investment Officer, Larry Adam, said, “We believe this interest rate tightening cycle is at an end. The next move will likely be to cut rates. However, we do not expect cuts until later in 2024.”

Equity gains and strong returns were far-reaching, impacting both small-cap and international equities, in addition to large technology companies with lines of business in AI.

Fixed income markets had strong returns, too, with the Bloomberg Aggregate Bond Index avoiding, at least for now, three consecutive years of negative performance and erasing year-to-date losses. After reaching 5% in late October, the yield on the 10-year Treasury settled around the 4.29% mark.

For a visual representation of our current status as we prepare to close out the 2023 calendar year, see below:

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Weakening economy indicated by jobs

The unemployment rate increased from 3.8% in September to 3.9%. Nonfarm employment increased by a mere 150,000 jobs, less than half of September’s 336,000 jobs. At the same time, the Leading Economic Index, a proxy for the future performance of the U.S. economy, decreased for the 19th consecutive month. Key manufacturing indicators also showed a decrease in performance for October.

An international sigh of relief

Although international markets retreated in October, November saw the easing of many fears. In the Middle East, the Israel-Hamas conflict has not led to increases in oil prices, and the conflict has not snowballed across the region. Inflationary pressures decreased broadly, perhaps suggesting that central bankers’ “higher-for-longer” interest rate strategies may be decreasing sooner rather than later. A San Francisco meeting between President Joe Biden and President Xi Jinping helped reduce tension between the two global superpowers. All these events together helped support equity rallies across international markets.

Oil: value over volume

Oil prices are finishing their second year at more than an $80/barrel average, and U.S. oil production saw record numbers in October, exceeding pre-COVID production rates. This is a global trend, sometimes referred to as value over volume, and indicates an emphasis on shareholder returns over production growth.

U.S. government shutdown avoided

A “clean” continuing resolution bill was shepherded through the House by Speaker of the House, Mike Johnson, thus avoiding the blowback that cost his predecessor his position. The new deadline to pass four of the twelve spending bills is now January 19, 2024, and February 2 is the deadline for the remaining eight. Attention will be focused on a “must-pass” defense funding bill, the National Defense Authorization Act, which could intersect with the market on potential technology and trade restrictions.

Equity rally over AI

The past three months have been the story of seven exceptionally well-performing large-cap technology stocks. November’s rally, however, was for everyone. The S&P 500 rose 8.92%, and small-cap stocks followed with an 8.83% gain for the Russell 2000. Smaller companies, who are particularly susceptible to the cost of borrowing, benefited from the lower yields.

Fixed income sentiment relaxes

The Fed has put a lid on its tightening program, causing fixed income markets to stabilize after a volatile start to the month. Intermediate- to long-range yields lowered by approximately 50 basis points compared to October. High-yield spreads and investment-grade A and BBB corporate spreads narrowed to a yearly low, and municipal yields as a percentage of Treasury yields also narrowed significantly.

The bottom line

November’s gains were certainly a welcome sight after three months of steady declines, but rising stocks and falling bond yields are contributing to the inflationary heat the Fed has worked to cool. While the Fed seemingly called off a final interest rate hike for the year, one can still expect a response if inflation changes. The markets will likely remain volatile as long as that threat looms.

As we enter the final month of 2023, which has been both an exhilarating and challenging year, we here at GDS Wealth Management are incredibly grateful for your continued partnership and trust in our team. It is our pleasure and privilege to support you in working towards your financial goals. If you have any questions at all regarding your financial plan or any of the news discussed in this market update, please reach out to one of our team members.

Sincerely,