November 2021 Stock Market Commentary
Ethan Pollard | December 07 2021
Global equities sold off in November as investors weighed the potential impact of the new Omicron variant on the global economy. The S&P 500, a benchmark for large cap US stocks, fell -0.7% on the month for a +23% gain year-to-date.
Smaller company stocks, which would be disproportionally affected by another round of business shutdowns should that scenario arise, fell -4.2% in November, with the Russell 2000 index now up +12% YTD. Overseas equities continued their struggle to find footing in a post-COVID world, as the MSCI ACWI ex-US index fell -4.5% this month for a +3.5% full-year gain.
Fixed income markets rallied as investors flocked to safety with the equity declines, as the Barclays Aggregate Bond Index gained +0.3% on the month (-1.3% YTD). Ten-year Treasury yields fell 12 basis points in November despite the consensus expectation that the Fed will begin raising interest rates next year.
Gold prices gained +2% on the month for a -4.4% return so far this year.
Despite the renewed COVID uncertainty, we saw no changes in any of our proprietary “Three Dials” readings during the month of November, each of which are summarized below:
- Market Sentiment and Momentum: (Positive ✔️)
After hitting a calendar-year low in September, bullish sentiment rebounded back toward historical averages in October according to AAII survey data, sending equity indexes to new heights and recovering key technical support levels. Our Momentum Dial remains in a “Positive” position heading the seasonally strong months of November and December.
- Economic Fundamentals: (Positive ✔️)
In the latest OECD Economic Outlook, both global growth and inflation are projected to remain above-average in 2022 before moderating in 2023. While this all but puts to bed the notion of “transitory” inflation, real (inflation-adjusted) growth should more than compensate for the expectation of higher prices. Despite this uncertainty around inflation, our Fundamental Dial remains in a “Positive” position based on the current pro-growth landscape.
- Valuation: (Negative ❌)
Equity prices have seen their own bout of inflation, with large cap US stock valuations reaching toward historic highs. Due to the risks imposed by these stretched multiples, our Valuation Dial continues to show a “Negative” reading.
Our Three Dials composite reading takes a “Cautiously Optimistic” view into the final month of the year, as continued strength in the areas of Momentum and Economic Fundamentals are balanced by Valuation concerns. We continue to monitor the data closely and will communicate any changes accordingly.
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