The stock market historically does well in November and November 2023 was no exception.
The tone in the press conference on November 1 following the two-day Federal Reserve Board meeting was much softer than comments made earlier in October. It made a noticeable impact on investors.
The yield on the 10 Year US Treasury was central to market performance in October and November. On October 19th the yield reached 5%, a high last seen in 2007. The stock market corrected into the end of October in response. After the Fed chairman spoke on November 1, the bond market interpreted his gentler comments to mean that short term rates had peaked at least for the time being. The yield on the 10 Year US Treasury gapped down and closed at 4.55% on Friday, November 3rd. The stock market, which was oversold in the October correction, rallied on falling bond yields.
Bond yields continued to decline through the month of November and the 10 Year closed on November 30th at 4.35%. In the first two weeks of December rates fell even more. As of this report on December 15th the 10 Year U S Treasury yield is 3.89%. This puts bond yields back to July levels. Falling rates have taken some pressure off the rate sensitive sectors of the stock market and fueled a stock market rally.
Ten out of the eleven major industry sectors improved in November. The only sector which did not show improvement was energy. This was a result of lower energy prices, which actually is good for the economy and the market.
The Federal Reserve Board met for the final time this week on December 12th and 13th. They voted to hold short term interest rates which was no surprise. The comments by the Fed chairman left investors expecting that there may be as many as three rate cuts in 2024 and possibly more. This did come as a pleasant surprise for investors.
The S&P 500 index rallied to 4,700 points on December 14th following the Chairman’s comments. This is the level last seen in December 2021.
Lower interest rates and a lower dollar will be a positive environment for continued stock market gains. There are plenty of headwinds, so we always have a plan if stock prices turn lower once again.
Seasonality is on our side, and barring some unexpected event the market appears positioned to move higher in the coming weeks.
Written by Connie C. Guelich, CFP, AEP, CLU, ChFC. This represents our views at the time of this writing, and it is subject to change. It is not intended to be personal investment advice. If you would like to discuss your own account, please don’t hesitate to call us.