December 2023 Market Perspective
As we bring the year to a close, we can reflect on the progress made and the challenges that still exist. The U.S. investment markets surged in November, with all three major U.S. indices posting notable gains for the month. The S&P 500 and Dow Jones Industrial Average were up 9.13% and 9.15%, respectively. The tech-heavy Nasdaq led the major indices up 10.83%. For the year, as of November 30th, the S&P 500, Dow Jones Industrial Average and Nasdaq were up 20.80%, 10.72%, 37.00%, respectively.
As of the end of November, 98% of companies have reported earnings for a blended earnings growth rate for the S&P 500 of 4.5% in the third quarter. This was well above analysts’ estimates and from the 2.8% growth rate at the end of October.
Foreign markets also performed well in both the developed and emerging markets. For the month of November, the developed foreign markets, as measured by the MSCI EAFE index, rose 9.28%, while the emerging markets, as measured by the MSCI Emerging Markets index, was up 8.02%.
Falling interest rates helped push the fixed income markets in November, up 4.53% as measured by the Bloomberg Aggregate Bond index. The 10-year U.S. Treasury yield fell from 4.77% to end the month of November at 4.37%.
Inflation continues to soften with the headline Consumer Price Index (CPI) reporting a 0.1% increase for the month of November and 3.1% year-over-year. Core CPI, which excludes food and energy prices, increased 0.3% for the month and 4.0% over last year. Both headline and core were in line with analysts’ expectations. Josh Jamner, investment strategy analyst at ClearBridge Investments commented, “The broader trend in inflation is intact, with the underlying trend still consistent with something much lower than we have experienced over the last two years but still above the Fed’s 2% target.”
The Federal Reserve is holding the final meeting of the year and it is widely expected they will hold rates where they are. The market is now expecting modest rate cuts in 2024, with a 40% chance the central bank will begin cutting rates in March, according to the CME FedWatch Tool. Investors are also monitoring when the Fed will end its monetary tightening policy of allowing bonds to mature without reissuing. According to the CNBC Fed Survey, there is 55% likelihood they will end quantitative tightening in November of 2024.
While we are seeing progress in the U.S. on inflation and a market acceleration, geopolitical risks are still worth noting with the continued conflicts in the Ukraine and the Middle East, which could lead to further instability and have a negative impact on the global markets. The slowdown in China will be another area to monitor as investors await what steps the world’s second largest economy will take to promote growth.
In other U.S. economic reports, hiring accelerated above economists’ expectations in November with 199,000 jobs being created. The unemployment rate for November fell to 3.7% from October’s 3.9%. With the positive economic reports, we continue to be cautiously optimistic that the Fed will achieve a soft landing rather than the U.S. dipping into recession and are hopeful for continued market recovery in both the stock and bond markets.