A November to Remember
December 7, 2023
November delivered a massive rally in risk assets, fueled by growing expectations for a soft landing and a pivot to rate cuts in the first half of 2024.
Softening macroeconomic data, including a further moderation in inflation, some weakening in consumer spending and a slowdown in job growth, have been good news for markets. As a result, yields across the Treasury yield curve eased. During the month of November, two- and ten-year Treasury yields declined 22 and 50 basis points, respectively, helping to deliver the best monthly fixed income returns in decades. Municipal bonds led the way, up over 6% for the month.
Within equities, a broadening of the market helped year-to-date laggards dominate. Banks led the way, advancing 14.9%. The S&P 500 gained 8.9% for the month, bringing its year-to-date return to 19.0%. The rally was widespread with the equal-weighted S&P 500 Index advancing 9.2%, its best monthly return since October 2022. Meanwhile, small caps were up 8.8% for the month, bringing the year-to-date return to 2.7%.
While markets have gained renewed confidence that a Fed pivot is near, we do not share that view. We believe the central bank will likely hold off on easing until the second half of 2024, when they are confident price stability has been achieved.
What does this mean for investors? While we do not expect the markets to deliver equally strong returns in December, our increased expectations for a soft landing should support positive returns across major asset classes in 2024.
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