Hello everyone,
Results are in: the S&P 500 finished flat for November. Delays in key government economic data releases resulted from the record-long federal shutdown that undermined investor confidence, as market participants awaited clarity on labor market and inflation trends. When the data was eventually released, it delivered mixed signals; September payrolls exceeded expectations but the unemployment rate increased to 4.4%, but is still historically low (https://www.usbank.com/investing/financial-perspectives/market-news/effect-of-job-market-on-the-economy.html).
Throughout November, the direction of Federal Reserve policy remained uncertain, causing rate cut odds to fluctuate dramatically and fueling market volatility. Fed officials expressed strongly differing views, further contributing to the lack of policy clarity. Economic and sentiment indicators pointed to weakness, with consumer confidence falling, retail sales growth slowing, and cautious signals from private payrolls and producer price inflation.
The overall economic tone oscillated between optimism for a "soft landing" and concerns about a slowdown, resulting in limited momentum for either bullish or bearish market participants. Additionally, thin trading volumes around Thanksgiving led to exaggerated market moves but restricted conviction and follow-through.
All that said, over the past week, the S&P 500 has experienced a rally that stands out for its remarkable breadth, as every sector has taken part in the upswing rather than just a handful of leading stocks. This widespread participation signals a healthy market environment, with particularly robust gains seen in communication services, consumer discretionary and technology, posting weekly advances of 5.9%, 5.3%, and 4.3%, respectively. Even the traditionally defensive sectors, such as utilities and materials, have contributed meaningfully to the overall momentum, reflecting a broad-based sense of optimism among investors.
Corporate America has been closing out its latest earnings season with extraordinary results, as S&P 500 companies report profits significantly above consensus expectations. Quarterly earnings across the index have climbed by 13%, fueled by an 8.3% rise in sales, demonstrating solid top-line growth. Moreover, 10 out of 11 sectors have posted year-over-year earnings increases, with the technology sector shining brightest, boasting a remarkable 29% jump in profits. This surge in corporate profitability has not only enhanced investor confidence but has also lent fundamental support to higher equity valuations.
Investor sentiment has improved noticeably, further buoyed by a sharp decline in market volatility. The CBOE Volatility Index has dropped substantially, indicating that market anxiety has subsided in the wake of a series of encouraging developments (https://ycharts.com/indices/%5EVIX). Among these are standout performances by major technology firms and the announcement of significant mergers and acquisitions, such as the acquisition news involving Robinhood Markets (HOOD). Additionally, consumer confidence indicators have received upward revisions, pointing toward increased optimism in the broader economy.
On the macroeconomic front, recent data presents a nuanced picture. While certain indicators, such as softer durable goods orders and weaker manufacturing surveys, suggest that the economy is beginning to slow, the labor market remains resilient overall as indicated in the said above. Though mixed, employment metrics imply that economic expansion is still underway. This creates what many analysts describe as a “Goldilocks” scenario—where the economy is cooling at a measured pace without tipping into a full-blown recession. Such conditions are favorable for equities, as they reduce fears of an imminent downturn while potentially paving the way for supportive monetary policy moves, if warranted.
Finally, international and policy developments have played a constructive role in shaping the current investment landscape. Positive signals from major global markets, such as the ending the U.S. government shutdown and signs of stabilizing inflation in China, have helped to ease risk perceptions among investors worldwide. These developments have contributed to renewed capital flows into U.S. equities, further reinforcing the market’s upward momentum and strengthening the case for continued optimism in the weeks ahead.
On the home front, the TSX was up a whopping 3.70% (https://ycharts.com/indices/%5ETSX/level). The TSX's strong performance in November was fueled by several intersecting factors. Broad-based sector gains were evident, with miners, information technology, and battery metals leading at various points, miners rose by 2.1% and tech by 1.6% on November 19th, while the Battery Metals Index surged 4.8% on November 27th. Base metals and tech stocks contributed notably as well, with information technology up 5.5% and base metals up about 3% on November 24th.
Optimism was also driven by federal announcements about nation-building and infrastructure projects, particularly in critical mineral extraction and energy, supported further by the launch of a $2-billion critical minerals fund and initiatives to retain value-added activities like refining within Canada. The Bank of Canada’s decision to cut rates amid an equity surge, highlighted exceptional bullishness, and both Canadian and U.S. central bank policies contributed to positive sentiment. Economic indicators were upbeat, with manufacturing and wholesale sales exceeding expectations and consumer spending remaining resilient (https://www.rbc.com/en/economics/forward-guidance/forward-guidance-our-weekly-preview/).
Commodity price movements, especially gold’s periodic upswings and energy stocks’ gains amid oil price rallies, also played a role. Finally, the TSX benefited from a global rally in risk assets, including gold, currencies, and crypto, as expectations mounted for Federal Reserve rate cuts. After mid-month, easing concerns about tech valuations and AI sparked renewed buying in tech and related sectors, marking a notable reversal from earlier correction fears.
So, what's ahead? Historically, December has been one of the stronger months for stock markets, especially in the United States. This phenomenon is popularly known as the “December Effect” or the “Santa Claus Rally.” The Santa Claus Rally generally refers to the tendency for stock prices to rise during the last week of December and sometimes continuing into the early days of January. Looking at data from the S&P 500 index, December has delivered positive returns about 70 to 75 percent of the time. On average, the S&P 500 returns around 1.2 to 1.5 percent in December, making it one of the best-performing months on the calendar.
Several factors contribute to this seasonal strength. Year-end portfolio rebalancing by institutional investors often leads to increased buying activity. Additionally, tax loss harvesting earlier in the year prompts investors to re-enter the market later, often in December. There is also a general sense of optimism during the holiday season, which positively impacts market sentiment. Furthermore, some investors receive year-end bonuses, part of which they might invest back into the markets. Fund managers also engage in “window dressing” by purchasing well-performing stocks to improve the appearance of their portfolios as the year closes.
Although December tends to perform well, market returns during this month can vary depending on the broader economic and geopolitical environment. In times of recession, bear markets or heightened uncertainty, the gains in December may be reduced or even negative. Unexpected events such as financial crises or global health emergencies can also disrupt the typical seasonal trends. Globally, while the December Effect is most notable in U.S. markets like the S&P 500, other stock markets sometimes exhibit similar patterns. However, these trends are less consistent and often influenced by local economic conditions, holidays, and trading cultures.
In summary, December historically stands out as one of the most favorable months for stock market returns, particularly in the U.S. The Santa Claus Rally embodies this seasonal uplift and is driven by a combination of psychological and institutional factors. Nevertheless, it is important to remember that past market behavior does not guarantee future results, and broader economic circumstances often play a decisive role in determining market performance.
As the holiday season approaches and the spirit of optimism fills the air, we (Louise, Jessica, Dana and I) would like to wish you all a joyful and prosperous Christmas. May Santa Claus not only bring festive cheer but also deliver the gift of strong returns to your portfolio this December, LOL. Here’s to a season of hope, opportunity, and positive momentum. May your investments shine as brightly as the holiday lights, and may the coming year bring even greater rewards. Happy Holidays!
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