Market Momentum: November Surge Sets the Stage for Optimism in December
Market Momentum: November Surge Sets the Stage for Optimism in December
By:JJ Kinahan
The bond market easing inflation are factors behind November's rally
- November's market surge suggests optimistic prospects for December's potential gains and investor confidence.
- Bond market shifts and easing inflation have shaped market rallies, offering momentum for future growth.
- The tech sector is responding positively to falling rates, indicating potential profitability and market resilience.
April showers bring May flowers but will the November rally in the financial markets, precipitate a robust December? Historical data suggests an 8% surge in November often heralds further gains, akin to poetic cadence. Yesterday marked the strongest market close since July 2022, signifying an upbeat finale to the month.
While the Nasdaq Composite edged down 0.2% for the day, it soared by 10.7% throughout November. Similarly, the S&P 500, up by 0.4% on yesterday, notched nearly 9% gains for the month. Analysis by FactSet reveals a promising trend: When Nasdaq boasts a 20% or more rise by November's end, it propels December gains 67% of the time, averaging 3.5%. The S&P's December upswing rate is higher at 75%, averaging nearly 2%. Despite the disclaimer that past performance doesn't predict future results (as attested to by my wife), optimism pervades December's start.
Sources of strength
The market rally owes its vigor in part to the bond market. November witnessed a fall in yields, notably the 10-year note from 5% in October to 4.35%, the most significant drop since 2019. This shift is crucial for the tech sector, which relies on borrowed capital for growth, thus influencing profit margins.
The decline in interest rates is a response to alleviating inflationary pressures. Notably, oil prices dipped over 6% in November, marking a nearly 20% fall from September's $95 peak. Despite OPEC+'s decision to cut production by a million barrels per day, oil prices tumbled further by over 2.5% yesterday.
Yesterday’s personal consumption expenditures (PCE) report echoed the slowdown in inflation. Core PCE prices, excluding food and energy, aligned with forecasts, showing a 3.5% year-over-year increase and a mere 0.2% month-over-month uptick.
The Federal Reserve deserves credit for skillfully steering toward an anticipated soft-landing, akin to the moon landing of 1969. Although the impact of recent interest rate hikes hasn't fully surfaced, entering December sparks optimism.
Specific stocks
Monitoring specific stocks today includes Dell (DELL), Disney (DIS), Pfizer (PFE) and Tesla (TSLA). Dell's lower-than-expected earnings led to a 5% premarket dip. Disney faces an activist challenge from Nelson Peltz seeking multiple board seats. Pfizer halted trials for a weight-loss pill because of significant side effects. Tesla commenced deliveries of its long-delayed cyber truck, priced at nearly $61,000. Tesla and Pfizer's premarket trades were declining, while Disney was ascending slightly.
Reflecting on November's close at 4567.80 for the S&P 500, mirroring November 2021's close, optimism aligns with a potential replay of 2021's December gain of nearly 4.5%. Consistency in investment strategies and long-term plans is advised as December unfolds.
JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan
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