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Monthly Market Update - November 2013

Summary
With the holiday season getting underway in November, investors could focus on being thankful for family, friends, and another month of positive global stock market returns. The MSCI AC World Stock Index rose 1.4% for the month as a result of strong investor demand for equities. Sparking that demand was continued economic and job growth in the U.S. and accommodative monetary policy by central banks globally. Good earnings reports from U.S. companies also supported stock prices. Outside of stocks, other market segments such as fixed income, REITs, and commodities had either flat or negative returns.
     
Economy
  The second estimate of third-quarter U.S. economic growth (real GDP) was revised up from 2.8% to 3.6%. The upward revision was mainly due to a rise in inventories, which could lead to slower fourth-quarter growth.
  Inflation (CPI) for the month of October declined by 0.1% due to the drop in gasoline prices, which fell 2.9%.
  Although the labor market participation rate remains weak, unemployment fell to 7.0% in November. Job gains were broad-based across sectors with the largest gains made by the manufacturing sector.
  A surprise to most, consumer confidence fell again in November. The October drop was expected due to the partial government shutdown, but the November decline can be attributed more vaguely to possible worries over the unsolved fiscal debates in Washington and the bumpy roll out of the Affordable Care Act.
     
U.S. Equity
  The S&P 500 Index reached a new high in November of 1,807 and ended the month with a total return of 3.0%. The index has not had a better first eleven months of the year since 1997, as it has surged 29.1%. Value stocks lagged growth stocks for the month and year as consumer discretionary and healthcare sectors led gains.
  U.S. small-cap stocks (Russell 2000 Index) rallied 4.0%, outpacing large-cap stocks. Small stocks are now the top market segment for the year with a 36.1% return.
     
International Equity
  Developed international large-cap stocks (MSCI EAFE Index) had a more modest gain of 0.8%. Returns were mixed across developed markets. For example, Japan rose 1.5% while Australia declined 4.4%.
  Emerging markets in aggregate declined 1.5% as measured by the MSCI EM Index. Worries about China’s slowing economy subsided and optimism grew over reform efforts. As a result, China led emerging markets with a 4.9% gain, while most other emerging markets declined.
     
Fixed Income
  Fixed income sectors posted flat to negative returns for the month with the 10-year Treasury yield rising by 18 basis points to 2.75%.
  The timing of tapering and the eventual end of the Fed’s $85-billion-a-month bond purchasing program still remains in question. With the recent Senate confirmation of the new Fed Chair Janet Yellen, tapering is expected to begin in the coming months if the release of improved economic and job data continues.
     
Alternatives
  Commodities (DJ UBS Commodity Index) declined for the third consecutive month. Weakness in the prices of precious and industrial metals (silver, gold, copper, and aluminum) resulted in a return for the index of negative 0.8%.
  Unlike other equities, global REITs (S&P Global REIT Index) took a sharp turn downward of 4.3%. REITs are sensitive to interest rates since they use debt to finance growth, so the prospect of higher rates has caused the market to decline recently.
     
Sources: Bureau of Economic Analysis (BEA), Federal Reserve, Institute for Supply Management, JP Morgan, Morningstar, JP Morgan, Standard and Poor’s, Wells Fargo, Yahoo! Finance
     
Market Returns - One Month as of 11/30/2013
     
Market Returns - Year-To-Date as of 11/30/2013
     
 Market Returns - One Year as of 11/30/2013
     
Source: Morningstar Direct. Indices used in above graphs: S&P 500 Index, U.S. Large Value-MSCI U.S. Prime Market Value Index, U.S. Small-Russell 2000 Index, U.S. Small Value-MSCI U.S. Small Value Index, Int'l Large-MSCI EAFE Index, Int'l Large Value-MSCI EAFE Value Index, Int'l Small-S&P EPAC Small Index, Int'l Small Value-S&P EPAC Small Value Index, Emerging Mkts-MSCI Emerging Markets Index, World Stock Index-MSCI All Country World IMI Index, TIPS-Barclays Gbl Infl Linked US TIPS Index, Short-Term Bonds-Ibbotson 1 Yr Treasury Const Mty Index, Interm-Term Bonds-Barclays Interm-Term Govt/Credit Index, Foreign Bonds-JPM GBI Global Ex US Hdg, Global REITs-S&P Global REIT Index, Commodities-DJ UBS Commodity Index.

Past performance is historical and does not guarantee or indicate future results. Index returns assume reinvestment of all distributions and unlike mutual funds, do not reflect fees or expenses. It is not possible to invest directly in an index. This report is not intended to provide personalized investment advice. Some information has been produced by unaffiliated third parties, and while it is deemed reliable, the advisor does not guarantee its timeliness, sequence, accuracy, adequacy or completeness.
Posted in: Market Commentary
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