Monthly Market Recap: December 1, 2022

November Market Recap

December 1, 2022 

After sharing our October recap a month ago, the Marks Group inbox received a couple replies from clients surprised we would strike such an optimistic tone in what has obviously been a difficult year for stocks. Thankfully, the momentum has remained positive and at least in the short-term, the path of least resistance for equities appears to be higher.

Stock prices increased for the second month in a row with the major US benchmarks all increasing more than 4%. Favorable comments from Federal Reserve officials, a stabilizing US dollar, falling energy prices, and a balanced result in the midterm elections all contributed to quality returns.

Every one of the 11 sectors in the S&P 500 posted gains in November, led by Materials (+11.5%) and Industrials (+7.6%). Lower oil prices led Energy (+0.7%) to underperform in relative terms, though it remains far and away the best-performing sector year-to-date. Consumer Discretionary (0.8%) also lagged.

Index November 2022 YTD 2022
Dow +5.67% -4.81%
S&P 500+ +5.38% -14.39%
NASDAQ +4.37% -26.70%

When markets closed on November 30, the S&P 500 had bounced nearly 17% from its mid-October low and had successfully clawed back nearly half its year-to-date losses. It would take another 2% rise from here to reach the official midway point between 2022 peak (January 3) and trough (October 13), but there’s no denying the encouraging behavior from equities in the last seven weeks.

Inflation remains problematic but has likely peaked, with the most recent Consumer Price Index (+7.7% year over year) offering the latest such evidence. That’s down from a peak of 9.1% inflation in June and, more importantly, represents a larger drop than expected from a month earlier.

Stock prices were already grinding higher in November but comments from Fed Chair Jerome Powell further ignited the rally. Speaking on November 30, Powell confirmed the Fed’s upcoming rate hike in December will be smaller than the last four (0.75% each) but cautioned, “Despite some promising developments, we still have a long way to go in restoring price stability.”

Powell is doing his best to convince markets that rate hikes will continue for the foreseeable future, but our sense is the Fed is a lot closer to pausing hikes altogether than they are letting on. Such a pivot away from restrictive monetary policy could happen as early as Q1 2023 and would be an obvious catalyst for stocks.

Third quarter GDP was revised higher to show 2.9% annualized growth (the initial estimate from October was 2.6%). Q3 corporate earnings revealed 2.2% growth from a year earlier, in line with expectations. There is still a legitimate possibility of a US recession in the second half of 2023 once the effects of high inflation and rising interest rates filter their way through the economy, but for now much of the data has been encouraging.

The US dollar’s relentless rise finally hit a ceiling last month. The Dollar Index weakened 5% in November versus a basket of global currencies and fell to a 5-month low. This trend reversal led to significant outperformance for international equities, which tripled the monthly returns of US stocks. Non-US Developed equities gained 13.2% in November. Emerging Market equities bounced 15.6%.

The war between Russian and Ukraine, as well as China’s restrictive measures to slow the spread of COVID remain problematic to the global economy, but neither was a strong hindrance to market movements in November.

As the dollar declined, so too did bond yields. 10-year US Treasury yields finished the month at 3.70%, considerably lower than the 4.33% peak in October. The yield curve is almost entirely inverted at this point, meaning short-term bonds pay higher interest rates than longer-term bonds. The bond market is suggesting that inflation and interest rates will come down in the years ahead.

The US midterm elections resulted in a politically-split Congress (red House, blue Senate), and it was refreshing to hear very few politicians dispute the official results. Divided government is often the preferred outcome for financial markets, which can realistically expect fewer legislative changes (and, therefore, less uncertainty).

Oil prices fell 7% in November. West Texas Intermediate Crude trades just above $80 per barrel, down from its peak above $120 per barrel in June.

Gold, which is another beneficiary of a weakening US dollar, increased 8.5% last month.

 

 

 

Investment Advice offered through Marks Group Wealth Management, a Registered Investment Advisor.

Marks Group Wealth Management performs in-house analysis on companies.  Statistical information on mentioned companies is obtained from company reports, news releases and SEC filings.  The information set forth herein has been derived from sources believed to be reliable, but is not guaranteed as to accuracy and does not purport to be a complete analysis of the securities, companies or industries involved. Opinions expressed herein are subject to change without notice.  Additional information is available upon request.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments and strategies may be appropriate for you, consult with us at Marks Group Wealth Management or another trusted investment adviser.  Mention of individual equities in this commentary are for informational purposes only and are not intended to represent a recommendation.

Stock investing involves market risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. International and emerging market investing involves special risks such as currency fluctuation and political instability. These risks are often heightened for investments in emerging markets.  No strategy assures success or protects against loss.  Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

Past performance is no guarantee of future results.  All indices are unmanaged and may not be invested into directly.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.

The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.

The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.

MSCI EAFE Index consists of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.

The Barclays Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment-grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.