November is the beginning of a 3-month period that has historically been the best of the year for stocks. Last year’s Q4 sell off is a reminder that history is just a guide, but this year November followed the script and moved steadily higher throughout the month, with multiple new all-time highs for the major indices. Despite all the impeachment noise out of Washington, the markets continued to focus on China trade which is seen as a catalyst that can reignite the economy. Q3 earnings reports continued to show corporate earnings above expectations for most companies and an increase in merger and acquisition activity during the month is seen as an economic vote of confidence by corporate America. At month end the S&P 500 had gained another 3.4%, its best month since June, and is now up 25.3% for the year. The rate on the 10-year Treasury edged 5% higher during the month, gold lost 3.2% in November and oil prices edged higher.
The month began with a 1% rally after the government reported a better than expected 128,000 new jobs were created in October and the previous 2 months were revised upward by another 100,00 jobs. The first full week of the month was a good one that was dominated by China trade. Multiple reports during the week from China and the U S that recent tariffs may be rolled back encouraged investors and the S&P 500 gained another .8% for the week. The second full week of the month was kicked off by the Veterans Day holiday which kept trading volume on the light side. During the week we learned a Bank of America survey of money managers showed they had moved from fear of recession to fear of missing the rally. We ended the week with a report that retail sales in October were better than expected, good news for a consumer driven economy. White House economic adviser Kudlow said a China trade deal was getting close and that helped the S&P 500 gain another .9%. China trade continued to dominate the headlines during the third full week with a Reuters report saying the two sides were having difficulties and they predicted no trade deal this year. The last day of the week President Trump said a trade deal was getting close but the S&P 500 still ended the week with a .3% loss, its first down week in 7 weeks. The final week of the month was kicked off with a 1% rally to yet more new all-time highs as money managers chase performance ahead of year end. Last week was dominated by the Thanksgiving holiday which cut the number of trading days to 3½ but the record setting rally continued into month end.
December has historically been one of the best months of the year for stock market performance, but I think we all remember last year’s 9% declined that capped off an abysmal Q4. Of course, last year the Fed was raising interest rates and this year they are more accommodative, an important difference. The backdrop for stocks in good, corporate earnings are growing, interest rates are low and show little sign of rising, the Fed is accommodative, inflation is low, and the current administration is pro-growth. With that said, the strong rally we have had this year has taken stock prices to elevated levels, so a 5% to 10% pull back could come at any time. As we have said over the past few years, we would view any tradeable dip as a buying opportunity.
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