November 2023 surpassed all expectations in the stock and bond markets.  Those investors who participated hit the bullseye. The month started off with a cooling CPI and PPI along with GDP jumping and the Fed’s hawkish stance softening.  This was the exact recipe for lower interest rates, a weakening dollar, and risk-on assets beginning to recover and rally, producing a month of stock market returns that was one for the record books.

The S&P 500 was up 8.9% in November, the Barclays Aggregate Bond Fund (AGG core bonds) was up over 4%, and Corporate Bonds (LQD) were up over 7%. All impressive returns.   Global assets had a huge increase in value and bonds had the best month in 40 years.  See chart below:

Gaugers (and other friends), welcome to this week’s Market Outlook.  We want to look at November and then bring an additional perspective of how far we have come, especially the past two years since the Fed began its unrelenting campaign of raising rates to cool the economy.  Their hawkish posture was to contain the dreaded high inflation everyone in the US was feeling (and around the world as well).

Interest rates coming down from 5% on the 10-year Treasury Bond along with a weakening US Dollar began the move into “risk assets” (i.e., the stock market).

We offer the following charts to illustrate some of the shifts in investor sentiment over the past 30 days:

The rally in bonds loosened financial conditions dramatically.  See below:

The 20-year bond ETF, TLT, now sits at resistance.  Which way will it go?

Bearish investor sentiment shifted quickly.  See chart below:

Recent investor sentiment data supports that the bears have retrenched.  See below:

At the end of November, the NASDAQ 100 (QQQ) erased the downward move that occurred over the past few months.  See chart below:

And fueled a monumental move in the large-cap indices as we illustrate below: 

November saw an appreciation of every sector but Energy for the month.  See chart below:

This past week saw the Dow Jones Industrial Average take the leadership role.  As it hit a new 52 week. Also, the Dow is now up 5 straight weeks.  See multiple Dow Jones charts below:

We also saw money rotate into more speculative areas of the market including small-caps, small technology companies and yesterday (Dec 1) small-cap value was the big winner.  See charts below:

Last week we provided our own proprietary color charts showing the Dow, the S&P 500, and the NDX (NASDAQ 100) and why it confirmed our belief that the market was in a solid uptrend.  If you would like to review these charts again (or did not see them), click here for a copy of last week’s Market Outlook. 

How did the big move up in November contribute to asset class and sector performance over the past two years? 

Remember that most of the stock and bond indices went way down during 2022.  Therefore, we were interested in where asset class performance stands for the past 2 years.  You may be surprised to learn that the S&P 500 and the NASDAQ 100 are only just now breaking even from early 2022 index prices.

A full and detailed explanation of all asset class performance for the past 2 years is below. (While technology has come back strong, you might be surprised to learn that the S&P 500 Value and Energy have been the best two areas of the US markets for the past two years).

What might December 2023 hold in store for us and what about the next 12 months? 

We did some digging and came up with a few important statistics and illustrations.  We start from a monthly perspective and then look at the next 12 months.  We prefer to do it with graphs, charts and illustrations as follows:

December is usually better than November:

More about the next 12 months:                                            

And finally, here is what the S&P 500 has done historically after having a big month, as it did in November. 

Also, let us not forget that there is an additional catalyst for a continued rally with a huge amount of money sitting in Money Market Funds on the “sidelines.”

These are different assets than those dedicated to fixed income, treasury bills or short duration assets.  These are predominantly sweep assets that are held in money market funds at places like Schwab or brokerage firms and banks that a client, who may have previously used stocks or bonds, now prefers to sit and wait until they feel “more comfortable” putting $ into risk-on assets (includes bond and stock ETFs and individual stocks).  The Federal Reserve monitors these assets as cash waiting to be deployed.

Right now, it is our belief that they sit in cash to avoid downside risk in the markets or the continued worry of a recession.  This is mostly fear generated. This is also why these types of risk averse investors come in late and see returns that are typically less than half of the S&P 500.  It happens with frequency right after a bad quarter or year.

Right now, this money market cash remains a huge pile that could find itself in the stock or bond market at any time.  Since we now have a tailwind in risk assets, it is important to watch to see if and when these assets get deployed.  They may be the catalyst to help drive risk-on assets higher.  These assets are about $1.6 trillion at the moment.

A November to Remember in GOLD as well. 

Another historical day on Friday as Gold had the highest historical closing price in the metal’s history.  As Mish has pointed out for over a year on National TV this is one of her favorite plays for 2023 and beyond.  Given this breakout from a long cup and handle consolidation, we could see Gold rally in the next few months.  See the charts on GOLD (GLD) that follows:

One of the best ways to participate if Gold continues to rally is through the Gold Miners given that there is far more leverage in this sector than in Gold.  Additionally, the long-term prices of gold miners are currently at a steep discount to the metal price.  See chart below:

Thank you for reading. 

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