November 2022 Stock Market Commentary
Ethan Pollard | December 07 2022
Global equities continued their fourth quarter surge with another monthly gain in November. Market participants weighed the tradeoff between slower economic growth and potentially lower interest rates.
The S&P 500, a broad benchmark for large cap US stocks, gained +6% in November and is now down -13% year-to-date.
Overseas equities climbed +12% this month to close the performance gap with domestic equities, as the MSCI ACWI ex-US index is now down -15% for the year.
Within fixed income, bond prices rallied as Fed Chair Powell confirmed that he would slow the pace of rate hikes into 2023. The Barclays US Aggregate Bond index gained +4% in November and is down -13% with one month left in the year.
Commodity prices rose +3% on the month with the Bloomberg Commodity index up +19% this year.
In this ever-shifting market landscape, we continue to parse the data as we seek to provide a comprehensive view of the current investment environment. We saw two offsetting changes in our proprietary Three Dials during the month of November, which we summarize below:
- Market Sentiment and Momentum: (Neutral ➖)
With all major global equity indexes up double-digits so far this quarter, and most having recovered key technical support levels as of month-end, we’re starting to get a glimpse that the worst of this current rout could be behind us.
While we’re not ruling out the possibility of a re-test of the October lows, current strength in equities has us upgrading our Momentum Dial one notch from Negative to Neutral.
- Economic Fundamentals: (Negative ➖)
Domestic manufacturing activity contracted for the first time since 2020, according to a widely watched ISM survey, while consumer confidence continues to lag in the face of persistent inflation.
While strength in the labor market remains a bright spot, higher interest rates appear be having the intended effect of stalling economic activity, and as such, we’re downgrading our Fundamental Dial from Neutral to Negative.
- Valuation: (Neutral ➖)
Forward price-to-earnings ratios remain largely in-line with long-term averages, as analysts continue to price in a rebound in corporate earnings for 2023. For now, we leave our Valuation Dial in a Neutral position.
With one dial moving a notch up while another simultaneously moves down a notch, there is no change in our Composite Three Dials reading. We continue to take a Slightly Defensive approach, with two dials taking a Neutral position while one dial remains fully Off.
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