Commentary
Monthly market commentary for November 2023.
Investors look to the Fed to pilot a soft landing
Global equity markets rallied sharply in November. Signs of slowing inflation spurred investors’ hopes that the Federal Reserve (Fed) won’t need to raise interest rates further and that the economy could be primed for a “soft landing,” in which growth and inflation slow but the economy does not enter a recession. Developed markets outperformed their emerging-market counterparts for the month.
The Nordic countries were the strongest performers among developed markets in November, led by Sweden. The Pacific ex Japan region was the primary market laggard due mainly to underperformance in Singapore and Hong Kong. Latin America posted a double-digit gain and was the top-performing region within the emerging markets during the month due primarily to strength in Brazil. In contrast, the Gulf Cooperation Council (GCC) countries—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates—saw a less significant upturn and comprised the weakest-performing emerging-market region during the month.1
Global fixed-income assets, as represented by the Bloomberg Global Aggregate Bond Index, gained 5.0% in November. Corporate bonds were the top performers within the U.S. market for the month, while U.S. Treasury securities saw relatively smaller gains and were the most notable market laggards.2 Treasury yields moved lower for all maturities of three months or longer. Yields on 2-, 3-, 5- and 10-year Treasury notes decreased 0.34%, 0.42%, and 0.51%, respectively, over the month. The spread between 10- and 2-year notes moved from –0.19% to –0.36% during the month, further inverting the yield curve.
The minutes of the Fed’s October 31-November 1 meeting indicated that the central bank most likely will maintain the federal-funds rate at the current range of 5.25% to 5.50% in the near term. The Federal Open Market Committee (FOMC) meeting participants agreed that they were ”in a position to proceed carefully and that policy decisions at every meeting would continue to be based on the totality of incoming information and its implications for the economic outlook as well as the balance of risks.” However, the FOMC members acknowledged that “further tightening of monetary policy would be appropriate if incoming information indicated that progress toward the Committee’s inflation objective was insufficient.” The FOMC also noted that “data arriving in coming months would help clarify the extent to which the disinflation process was continuing, aggregate demand was moderating in the face of tighter financial and credit conditions, and labor markets were reaching a better balance between demand and supply.”
On the geopolitical front, a one-week ceasefire in the military conflict between Israel and Hamas expired on November 30, after the two sides could not reach an agreement on an extension. The truce had led to several hostage and prisoner exchanges between Israel and Hamas. Each side blamed the other for the failure to extend the ceasefire, and fighting resumed following the expiration of the truce. Elsewhere, President Joe Biden and China’s President Xi Jinping met in California on November 15. The leaders of the world’s two largest economies agreed to resume military communications in an effort to improve relations between the countries amid speculation about China’s intention to invade Taiwan, as well as the Xi administration’s support of Russia in its ongoing conflict with Ukraine. At a news conference following the meeting, Biden noted that he and Xi had agreed that if there were concerns about “anything between our nations, or happening in our region, we should pick up the phone and call.”
Global commodity prices, as measured by the Bloomberg Commodity Total Return Index, declined in November. The West Texas Intermediate (WTI) and Brent crude oil prices fell 6.2% and 4.9%, respectively, due to a significant increase in production in the U.S. and weakening global demand, particularly from China. The New York Mercantile Exchange (NYMEX) natural gas price tumbled 27% over the month due to an increase in inventories and forecasts for above-average winter temperatures in the U.S. On the positive side, the gold spot price rose 3.2% in November, bolstered by a decline in U.S. Treasury yields, as well as higher demand spurred by investors’ hopes that the Fed may begin to ease monetary policy sooner than previously anticipated. Wheat prices were up 7.5% in November attributable to a reduction in exports from Ukraine, along with a delayed harvest in France due to above-average rainfall.3
1 All equity market performance statements are based on the MSCI ACWI Index.
2 According to the ICE BofA U.S. Corporate Index and ICE BofA U.S. Treasury Index
3 According to market data from The Wall Street Journal.
4 According to the Office for National Statistics, November 15, 2023.
5 According to the Office for National Statistics, November 10, 2023
6 According to Eurostat. November 30, 2023.
7 According to Eurostat. November 14, 2023.
Disclosures
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding SEI’s portfolios or any stock in particular, nor should it be construed as a recommendation to purchase or sell a security, including futures contracts.
There are risks involved with investing, including loss of principal. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Narrowly focused investments and smaller companies typically exhibit higher volatility. Bonds and bond funds will decrease in value as interest rates rise. High-yield bonds involve greater risks of default or downgrade and are more volatile than investment-grade securities, due to the speculative nature of their investments.
Diversification may not protect against market risk. Past performance does not guarantee future results. Index returns are for illustrative purposes only and do not represent actual portfolio performance. Index returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly in an index.
Information provided by SEI Investments Management Corporation, a wholly owned subsidiary of SEI Investments Company (SEI).
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