Key Takeaways
- Market Close Out Strongest Month Since July 2022
- Rates Drop Most Since 2019
- Soft Landing In Sight
They say April showers bring May flowers, but is eight in November great for December? There’s a reason I didn’t pursue a career in poetry. Still, poetic skills aside, there is historical precedence suggesting an 8% gain in November sets the rest of the year up for further gains. On Thursday, markets closed out the strongest month we’ve seen since July of 2022.
Despite being down 0.2% on the day, the Nasdaq Composite closed out the month higher by 10.7%. The S&P 500 gained 0.4% on Thursday and nearly 9% for the month. According to FactSet, when the Nasdaq is higher by 20% or more through November, it carries the momentum into December 67% of the time with an average gain of more than 3.5%. The S&P closes higher in December even more frequently, at 75% of the time, with an average gain of nearly 2%. Although past performance is not indicative of future performance (just ask my wife), there is reason for optimism as we head into the last month of the year.
Part of the reason for the market rally can be explained by action in the bond market. Throughout November, we saw yields fall. The rate on the benchmark 10-year note fell from 5% in late October to 4.35%. That was the largest decline in rates since 2019. The tech-heavy sector of the market is traditionally more reliant on borrowing money to finance growth and therefore, a drop in rates can have a pronounced effect on the bottom line.
If we follow the storyline further, we’ll see the reason for the drop in interest rates is a result of easing inflationary pressure. One of the biggest inflation catalysts, oil, dropped over 6% in November. Since hitting a high of $95 back in September, crude oil prices have fallen nearly 20%. On Thursday alone, oil prices fell more than 2.5%. That drop came despite news the members of OPEC+ would cut back on production by one million barrels per day.
The leveling off of inflation was also evident in Thursday’s Personal Consumption Expenditures (PCE) report. Core PCE prices, which exclude food and energy, came in as forecast. On a year-over-year basis, prices increased 3.5%. Month-over-month, prices increased just 0.2%.
At this point, you have to begin giving the Fed some credit as it appears they’ve made amazing progress in navigating a soft-landing many feared was impossible. What the Fed seems to be heading toward is pulling off the monetary policy equivalent of the 1969 moon landing. We won’t celebrate until Neal Armstrong is out of the capsule and walking, but the landing gear is being lowered. While interest rate hikes can take up to a year to make their way through the economy, the full effects of recent increases have yet to be completely felt; however, as we head into the last month of the year, there’s 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 lower by 5% in premarket trading. Activist investor Nelson Peltz has launched a proxy battle with Disney in hopes of gaining multiple seats on the Board of Directors. Pfizer announced they will discontinue trials for their weight-loss pill after side effects proved too significant to move forward with further testing. Lastly, Tesla began deliveries of their long-delayed cyber truck on Thursday. The truck came in priced at the high end of analyst estimates at nearly $61,000. Shares of Tesla along with Pfizer are trading lower in premarket, while Disney is slightly higher.
Finally, 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 head into the last month of the year, hopefully we can see a repeat performance from December of 2021 when the S&P added nearly another 4.5% of gains to close out that year. As always, I would stick with your investing strategy and long-term plans.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.
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