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The S&P 500 index climbed over 5% in November, after gaining over 8% in October. The Fed, inflation data and geopolitical risks were the focus of investors this past month.
November started with the Fed raising the Fed Funds rate by another 0.75% to a new range of 3.75% - 4.00%. Following the FOMC meeting, while investors interpreted the Fed’s written statement as dovish, Fed Chairman Jerome Powell’s press conference comments were decidedly hawkish, including no pause on rate hikes foreseen anytime soon. Market expectations for higher rates steepened towards peak rates of over 5.25% by May 2023.
The following week, stocks rebounded on inflation data, as the Consumer Price Index (CPI) came in lower than expected. The annualized CPI increase came down to 7.7% year-over-year in October from 8.2% in September. The easing in inflation growth ignited a massive rally in equities, particularly growth stocks, and stirred a pullback on the expected terminal (peak) rate of the Federal Reserve back below 5%.
After retail sales came in higher than expected, the Fed officials tried to tame expectations and Fed officials’ comments became a bit more hawkish. However, the following week minutes from the Federal Reserve’s November policy meeting signaled policymakers would ratchet down its aggressive stance on rate hikes. The FOMC meeting minutes revealed that “a substantial majority of (Fed) participants judged that a slowing in the pace of increases would likely soon be appropriate.” A 0.50% interest rate increase in December is now widely expected, following four straight 0.75% prior increases.
The month ended with escalating tensions in China regarding the government’s strict “zero Covid” policies. Protests around China became widespread, but the Chinese government moved quickly to break up the protests. Investors largely looked past the geopolitical risks involved with these protests and focus on Fed Chair Powell’s comments the last day of the of the month. He said time for moderating the pace of rate hikes could come as soon as December, sparking market enthusiasm and a stock market rally to close out November.
In November, all equity style boxes displayed positive returns for the month, while year-to-date (YTD) returns remain negative. Like the month prior, value-oriented companies had stronger gains versus their growth counterparts in November. However, in a reversal from October, small cap stocks underperformed larger stocks. Value continues to widely outperform on a year-to-date basis.
Style Box Index returns above are represented by: Large Value (Russell 1000 Value), Large Core (Russell 1000), Large Growth (Russell 1000 Growth), Mid Value (Russell Mid Cap Value), Mid Core (Russell Mid Cap), Mid Growth (Russell Mid Cap Growth), Small Value (Russell 2000 Value), Small Core (Russell 2000), Small Growth (Russell 2000 Growth). Source: Morningstar Direct, total return based, including reinvested dividends.
In sector performance, for the second straight month all 11 major groups posted positive returns. The materials sector was the top performer for November, while Energy continues to lead the way on the year-to-date basis. Positively, two more sectors turned positive for the year. Consumer staples and Utilities join energy as having positive returns over the past 11 months.
Foreign equity markets had a huge November, with the MSCI EAFE Index (representing developed markets outside of the U.S. and Canada) up over 11%, surpassing the S&P 500 which was up just over 5%. Emerging Markets faired even better, up close to 15% in November and trimming its 2022 loss to around 19%. Notably, Chinese equities were up nearly 30% last month.
Turning to fixed income markets, Treasury yields dropped significantly. Notably, the 10-year Treasury yield went from 4.10% the last day of October to finish November at 3.68%. Yields move inversely to bond prices, so this meant bonds indexes saw decent gains in November. The longer the duration the better the returns. Lower credit bonds, such as high yield bonds were up more modestly, around 2%, while the broad Bloomberg U.S. Aggregative Bond index was up 3.68%.
This report is created by Cetera Investment Management LLC. For more insights and information from the team, follow @CeteraIM on Twitter.
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The Bloomberg Barclays Capital U.S. Aggregate Bond Index, is a broad based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government–related and corporate debt securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency) debt securities that are rated at least Baa3 by Moody’s and BBB- by S&P. Taxable municipals, including Build America bonds and a small amount of foreign bonds traded in U.S. markets are also included.
The Bloomberg Barclays US Municipal Bond Index covers the USD-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and prerefunded bonds. Eligible securities must be rated investment grade (Baa3/BBB- or higher) by Moody’s and S&P and have at least one year until final maturity, but in practice the index holding have a fluctuating average life of around 12.8 years.
The Bloomberg Barclays US Corporate High Yield Index measures the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch, and S&P is Ba1/BB+/BB+ or below, excluding emerging market debt. Payment-in-kind and bonds with predetermined step-up coupon provisions are also included. Eligible securities must have at least one year until final maturity, but in practice the index holdings has a fluctuating average life of around 6.3 years.
The Barclays U.S. Government Bond Index is comprised of the U.S. Treasury and U.S. Agency Indices. The index includes U.S. dollar-denominated, fixed-rate, nominal US Treasuries and US agency debentures (securities issued by US government owned or government sponsored entities, and debt explicitly guaranteed by the US government).
The Bloomberg Commodity Index is a broadly diversified index that allows investors to track commodity futures through a single, simple measure. It is composed of futures contracts on physical commodities and is designed to minimize concentration in any one commodity or sector. It currently includes 19 commodity futures in five groups. No one commodity can comprise less than 2% or more than 15% of the index, and no group can represent more than 33% of the index (as of the annual reweightings of the components).
The Cboe Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.
The MSCI EAFE is designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada. The Index is market-capitalization weighted.
The MSCI Emerging Markets is designed to measure equity market performance in global emerging markets. It is a float-adjusted market capitalization index.
The MSCI All-Country World Index (ACWI) is a market cap weighted index designed to represent performance of the full opportunity set of large- and mid-cap stocks across 23 developed and 26 emerging markets, covering more than 2,700 companies across 11 sectors and approximately 85% of the free float-adjusted market capitalization in each market.
The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values.
The Russell 1000 Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth values.
The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe and is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.
The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.
The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe and is a subset of the Russell 1000 Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership. The Russell Midcap represents approximately 31% of the total market capitalization of the Russell 1000 companies.
The S&P BSE SENSEX Index is a free-float market-weighted index of 30 well-established and financially sound stocks on the Bombay Stock Exchange, representative of various industrial sectors of the Indian economy.
The S&P 500 is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.
The NASDAQ Composite Index includes all domestic and international based common type stocks listed on The NASDAQ Stock Market. The NASDAQ Composite Index is a broad-based capitalization-weighted index.
The Shanghai Composite Index is a stock market index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange.
The U.S. Dollar Index is a weighted geometric mean that provides a value measure of the United States dollar relative to a basket of major foreign currencies. The index, often carrying a USDX or DXY moniker, started in March 1973, beginning with a value of the U.S. Dollar Index at 100.000. It has since reached a February 1985 high of 164.720, and has been as low as 70.698 in March 2008.
West Texas Intermediate (WTI) is a crude oil stream produced in Texas and southern Oklahoma which serves as a reference or "marker" for pricing a number of other crude streams. WTI is the underlying commodity of the New York Mercantile Exchange's oil futures contracts.