“Just when I thought you couldn't get any dumber, you go and do something like this... and totally redeem yourself!” – Harry Dunne, Dumb & Dumber
The stock market just capped off a historically strong month, thanks to growing conviction on Wall Street that “higher for longer” interest rates will not weigh down stocks as significantly as feared.
November’s gains snapped a three-month losing streak as the S&P 500 index rallied +8.9% for the month and notched its best monthly performance since July 2022. It is also the S&P’s fourth-best month of the last decade and the second-best November of the last 40 years! The S&P 500 index now firmly sits at +18.2% for 2023.
Equally exciting, the breadth of the market has finally expanded, as 87% of stocks listed on the S&P participated in the rally last month. which contrasts with early 2023, when the rally was driven by very few tech stock.
So, what was the catalyst for November’s euphoria? Increased optimism.
As inflation data continues to come in below expectations, professionals are starting to really believe that the Federal Reserve is not only finished raising rates but may actually start cutting interest rates sometime in the first half of next year. With this shift in rate expectations, yields plummeted last month, hitting their lowest level since September and fueled stock gains. Don’t look now but the “soft-landing” outlook that seemed so improbably earlier this year, looks like it is very much back on the table.
In fact, the new consensus among Wall Street strategists is that stocks will continue to gain in 2024, albeit below this year’s growth.
But alas, the year is not yet over and hopefully, neither are the gains. Looking at trends that date back to 1950, the S&P 500 has generally seen strong returns following a monthly gain of +8% or more, increasing another +1.8%, on average, in the following month, according to Ryan Detrick, chief market strategist at the Carson Group. With that being said, it is likely that we will experience some zigzagging in the markets until mid-December’s Federal Reserve meeting where Fed chairman Jerome Powell should confirm whether interest rate hikes are done, and inflation is in line. If my suspicions are correct, the market could turn higher for the second half of the month and experience the Santa Clause rally we are all hoping for.
Have a great holiday season with your friends and family! We will continue to keep our eyes on the horizon and let you know if any changes are needed!