US equity markets bounced back in November, riding a post-election surge higher as the “America First” trade benefited domestic equities at the expense of their international counterparts. The S&P 500 index rallied +6% and is now up +28% with one month left to go in the year.
Smaller company stocks, which have greater leverage to the local economy, surged +11% in November, with the Russell 2000 index now up +21.5% year-to-date.
International stocks fell -1% on the prospect of higher tariffs hurting trade, as the MSCI ACWI ex-US index is now up just +8% on the year.
Within fixed income, interest rates ended the month lower as markets continue to digest the Fed’s rate cut plans. The Bloomberg Aggregate Bond index gained +1% in November for a +3% return year-to-date.
Commodity markets were mixed, while Bitcoin prices surged to new all-time highs in anticipation of a more crypto-friendly regime.
Our proprietary Three Dials readings remain unchanged through the end of November, as we outline below:
- Market Sentiment and Momentum: (Positive ➕)
Despite several bouts of volatility during the year, the S&P has managed to avoid a 10% correction during 2024, which we expect to continue heading into the seasonally strong month of December.
Given that we see a correction on average every 16 months, we won’t be shocked to see one come 2025, but for now our Momentum Dial stays Positive.
- Economic Fundamentals: (Negative ❌)
While consumers appear optimistic about another Trump presidency’s impact on the economy, inflation worries have also reemerged, with two consecutive above-trend prints causing uncertainty around the extent to which the Fed can continue cutting rates.
While we await clarity on the near-term direction of growth and inflation, our Fundamental Dial remains Negative.
- Valuation: (Negative ❌)
With the S&P on pace for its second consecutive year of over 25% gains (and third in four years), we remain in an environment of single-digit earnings growth, which has pushed forward price-to-earnings ratios to multi-year highs on par with the Dot Com bubble.
This leaves our Valuation Dial in a Negative position.
Our composite Three Dials reading remains in a Moderately Defensive position through the most recent month-end, with two dials Negative and one dial Positive.
Sources: Morningstar
