US and International Equities
The major market indices, as denoted by the S&P 500 and Nasdaq, rebounded in November with all sectors finishing higher. November was a record-breaking month for equities, thanks to positive vaccine news, a strong third quarter earnings season, along with a likely split Congress. Below are some of November’s market highlights:
- Best month for the Dow since January 1987 (11.9%) and best month in November since 1928
- Best month ever for the STOXX 600 (16.7%)
- Best month ever for the Russell 2000 (18.4%)
- Best month for the S&P 500 Index (11%) and Nasdaq (11.8%) since April 2020
- Best month for Dow Transports since October 2011 (12.1%)
- Best month from PHLX Semiconductor Index since March 2003 (18.4%)
- Best month for Industrials (16.0%) and Financials (16.9%) since April 2009
- Second best month ever for Energy (28.0%)
Energy was the best performing sector this month, returning almost 30% after being down approximately 50% at one point this year. The sector has been a major detractor to S&P 500 performance and is still down over 30% year to date. Depressed energy demand due to COVID-19 along with a push toward alternative energy sources have weighed on the sector’s performance.
Financials and industrials also finished last month strong. Both economically-sensitive sectors outpaced the broad market, but year-to-date, financials are still in the red. Financials had been challenged by the rate environment due to the different interest rate environment and potential for more commercial and consumer loan defaults.
After two straight positive months—the only sector to accomplish that feat—utilities reversed course and ended November as the worst performing sector.
Like their domestic counterparts, international equities finished the month solidly higher. Emerging markets stocks, as denoted by MSCI Emerging Markets (EM) underperformed developed market equities, as indicated by the MSCI EAFE by over 1%.
As we have noted during previous Weekly Market Performance blogs, small cap stocks have been standout performers recently. Both the S&P 400 Midcap Index and the small cap Russell 2000 Index finished higher for the month, outperforming both the S&P 500 as well as the Nasdaq. For more of our thoughts on small caps, please read Weekly Market Commentary: Three Reasons We Like Small Caps.
“Small caps are now up almost 20% for the month of November, which is the greatest one month gain ever for the Russell 2000, using data back to 1978 from Bloomberg,” said LPL Chief Market Strategist Ryan Detrick.
Fixed Income, Currencies, and Commodities
The bellwether Bloomberg Barclays US Aggregate Index finished the month higher. Major bond sectors mostly fell in lockstep. High yield bonds, designated by the Bloomberg Barclays High Yield Index, finished the month up 4%. International bonds, denoted by the FTSE World Government Bond Index, and emerging markets debt, measured by the JP Morgan Emerging Markets Bond Index (EMBI), also ended the month higher.
Commodities were a mixed bag in November. Oil and natural gas moved in opposite directions. In the last two months, natural gas experienced a more than 45% return swing, with the commodity finishing 32.8% higher in October and falling 14.1% in November. Copper also finished the month solidly in the green with gain over 10%. Gold and silver ended lower to close out November, but are both still higher year-to-date with silver up over 20%.
US and International Economic Data Recap
Conference Board’s Leading Economic Index (LEI). The Conference Board’s Leading Economic Index (LEI) rose 0.7% month over month in October. This follows a similar increase for the LEI in September along with a 1.4% increase in August. The Institute for Supply Management (ISM) New Orders Index, average weekly initial claims for unemployment insurance, and the Leading Credit Index led the way among positive contributors. Building permits and average consumer expectations for business conditions held steady, but manufacturers’ new orders for nondefense capital goods, excluding aircraft—one proxy for business investment—declined in October. While this number still signals continued future economic growth, it does reinforce that the pace of the recovery is slowing.
Inflation. Inflationary pressure subsided in October, with the core Consumer Price Index rising 1.6% year over year, but again declining on a month-over-month basis. Producer prices, measured by the core Producer Price Index, increased 1.1% year over year. This was less than expected and shows that producers are having marginal success increasing prices as the economy tries to recover from the COVID-19 lockdowns. While inflation has risen from low levels, this data reaffirms it will take some time to reach the Federal Reserve’s (Fed) inflation target.
US Consumer. The Conference Board’s Consumer Confidence Index fell slightly in November after remaining relatively even in October. Moreover, the Present Situations Index along with the Expectations Index both declined slightly. In addition, US retail sales rose in October at their slowest pace since this past spring. This could be a sign that the economic recovery may be losing steam given the increase in COVID-19 cases nationwide.
US Home Sales. Existing US home sales rose to a 14-year high in October, a positive sign as low interest rates along with a shift in living and work arrangements driven by COVID-19 help the housing market. October’s increase set the fifth consecutive monthly increase in home sales and a 26.6% year over year increase. This increase in home sales should help spending on home amenities as well, something that will be watched by market analysts.
US Business. The National Federation of Independent Business (NFIB) Small Business Optimism Index remained unchanged in October from September. The reading remained at 104, which is a relatively high reading. However, the NFIB noted that their uncertainty reading was high as well. This can be due to the fact that the reading was done prior to the election as well as COVID-19.
Federal Reserve Open Market Committee (FOMC). The FOMC meeting during November noted that asset purchases would continue and be monitored going forward. Members of the FOMC expressed concern over rising COVID-19 cases and their effect on economic activity. One aspect to note is that the FOMC meeting happened prior to announcement of COVID-19 vaccine treatment progress this month.
US Employment Claims. The US unemployment rate still remains high compared to history. COVID-19 continues to play an adverse role on service industry employment. Even though the unemployment rate has declined from a peak of approximately 15%, we are quite far from having an economy at full employment. The distribution of a COVID-19 vaccine should help the employment landscape.
Investors will be following run-off elections for two Georgia senate seats on January 5. The result will determine which party controls the US Senate and whether there will be split-party rule. Even with much positive news on the COVID-19 vaccine front, COVID-19 number spike still weigh on investor minds.
Progress on an additional second round of stimulus remains at a standstill. Investors will be looking for forward movement with COVID-19 cases on the rise, some benefits expiring at the end of December, and some segments of the economy continuing to struggle.
As we head toward the home stretch this year, holiday sales will be viewed closely given COVID-19 and the current employment landscape. Considering this past month’s vaccine progress as well as the performance of both small cap equities and economically-sensitive sectors, market participants seem to be pointing towards a potential 2021 economic recovery.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results. All market and index data comes from FactSet and MarketWatch.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
U.S. Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
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This Research material was prepared by LPL Financial LLC.
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