November 2023 Stock Market Commentary

Markets bounced back in November, with both stock and bond prices rebounding in the wake of encouraging inflation data.

The S&P 500, a benchmark for large cap US stocks, soared over 9% for its best month in over a year after enduring three straight monthly declines.

The index is now up +20.8% year-to-date. 

Positive returns were similarly distributed across size and geography in November, with both small caps and international stocks also logging a 9% gain for the month. The small cap Russell 2000 index is up +4.2% year-to-date, while the international MSCI ACWI ex-US index is up +16.6% for the year.

Within fixed income, ten-year treasury yields fell after CPI data showed that headline inflation was flat in October, all but confirming speculation that the Fed is done hiking interest rates with higher prices coming under control. The Bloomberg US Aggregate Bond Index jumped +4.5% for its best monthly return since 1985, and is now up +1.6% YTD.

Commodity prices fell another -2% in November, with the Bloomberg Commodity Index now down -5.4% on the year, led broadly by lower oil and gas prices.

Our data driven Three Dials readings were once again unchanged during the month of November, which we outline below:

1. Market Sentiment and Momentum: (Positive ➕)

We posited last month that favorable technical support combined with traditional year-end demand for equities would provide a boost for stock prices, and so far, our thesis has been borne out.

Throw in the increasingly likely prospect of having already achieved peak interest rates, and the near-term setup for equity momentum remains Positive.

2. Economic Fundamentals: (Negative ❌)

October’s inflation print was hailed as a victory by markets, though the risk remains that the Fed will be unable (or unwilling) to normalize rates before tipping the economy into a mild recession.

In conjunction with weak manufacturing data that tends to correlate with an economic slowdown, our Economic Dial remains Negative.

3. Valuation: (Negative ❌)

Equity valuations got a boost from both lower interest rates and stronger than expected Q3 corporate earnings, both of which were a likely tailwind to November's performance. That said, stocks still sit on the expensive side of historical levels, leaving our Valuation Dial in a Negative position.

Heading into the last month of the year, our composite Three Dials reading remains in a Moderately Defensive position, with two dials Negative and one dial Positive. 

Sources: Morningstar