November Market Recap-Equities Surge as Treasuries Fall
Key Takeaways:
- Inflation data continuing to improve, but still work to be done.
- Fed keeps rates unchanged.
- Global equities on pace to post best monthly performance in three years.
- Falling yields push bond index higher for first time in seven months.
- Commodities fall on demand fears.
Weak economic data and persistent geopolitical turmoil has done little to derail the global equity rally this month. Through Friday (11/24), the MSCI AC World Index is on pace to post its best monthly performance since November 2020. Investors have looked beyond the slowing economy and are focusing on the idea that the Federal Reserve tightening cycle may be coming to an end. Treasury yields also reflected this view with all maturity ranges seeing yields drop, led by long term Treasuries. This week, we analyze November performance thus far from an economic and asset class perspective.
- Inflation continuing to improve: Headline inflation as tracked by the Consumer Price Index increased at a 3.2% annualized pace, which was less than expected for the month. Core CPI, which strips out volatile food and energy prices, increased at the slowest annual pace in two years.
- Labor market shows signs of cooling: The U.S. economy added fewer jobs than expected during the month and the unemployment rate increased to its highest level since January 2022 (3.9%). In addition, both jobless claims and continuing claims are accelerating.
- Fed keeps rates unchanged: The Federal Reserve decided to keep interest rates steady at 5.25% - 5.50% during their most recent meeting but kept the possibility of additional hikes on the table and stressed the committee’s data dependency.
- Consumer confidence deteriorates: Confidence among consumers deteriorated to a five-month low, according to the Conference Board. The University of Michigan survey reiterated these findings and reported long-run inflation expectations increased to the highest level since 2011.
Global Equities Rally: Both developed and emerging market equities are on pace to post strong gains for the month as investors anticipate global central banks may be nearing the end of their tightening cycles.
- Global equities set to post best performance in three years: The MSCI AC World Index is on pace to post its best monthly performance since November 2020. Both developed and emerging markets are on pace to post their best monthly performance of the year, with developed markets set to outperform emerging markets for the second straight month.
- U.S. equities on pace for best monthly performance of the year: All major U.S. averages are on pace to post their best monthly performance of the year, driven by a surge in growth and tech related sectors due to falling Treasury yields.
Fixed Income – Yields Plummet: The Bloomberg Barclays Aggregate Index is on pace to post its first monthly gain in seven months are Treasury yields fell on slowing inflation and bets the Fed has finished raising interest rates.
- Investment grade corporates lead rally: IG corporates are set to post their best monthly performance in a year and post a gain for the first time since July.
- Short duration lag: Floating rate instruments and short-term Treasury bills rallied but at the slowest pace of all the sectors.
Commodities Weaker on Demand Fears: The Bloomberg Commodity Index is on pace to fall for the third time in the past four months. Energy is leading the weakness. Natural gas is in bear market territory (drop below 20%) and crude oil prices are on pace to decline for the second consecutive month.