Best Month of the Year for Stocks

The U.S. economy grew faster than initially thought from July to September, as gross domestic product increased at a 5.2% annualized rate, beating the previous estimate of 4.9%. It’s the fastest pace of expansion since Q4 2021. The stronger growth and warm feelings about disinflation spurred optimism that the U.S. economy will probably avoid recession next year.

Against a bullish macro backdrop, November was the best month of the year for U.S. stocks and bonds with gains of 8.92% for the S&P 500 while investment grade corporate bonds overall surged by more than 5%. It was also a strong month for gold, up 2.65%. It even reached a six-month high above $2,070 an ounce on Friday amid dollar weakness, diminished global interest rate forecasts and worries about a possible intensification in the Israel-Hamas conflict.

In Europe, stock markets also enjoyed their most robust month since January (MSCI EMU up 7.80%), buoyed by slowing inflation. The latest data indeed showed that eurozone inflation fell to 2.4% in November, down from 2.9% in October and significantly lower than expected. Despite the European Central Bank (ECB) officials' inclination to understate the prospect of rate reductions in the upcoming year, Fabio Panetta, the newly appointed governor of the Bank of Italy and a member of ECB's governing council, emphasised on Thursday that the ECB should not cause "unnecessary damage" to the economy and financial stability through sustained high interest rates.

Asian indices were also in the ascendency except for China. The Shanghai Composite edged up 0.36% over the month while the Hang Seng edged down 0.41%. Manufacturing activity in China contracted for the second consecutive month in November, and at a faster rate, indicating a greater requirement for stimulus measures to bolster economic growth and restore confidence in the government's capability to adequately back industry. By contrast, Japan’s Nikkei 225 gained 8.52% for the month, hitting 33-year highs. KOSPI jumped 11.30% amid some recent improvement in the South Korean economy. India’s Nifty 50 rose 5.52%. The country’s GDP grew at a higher-than-expected 7.6% in the July to September 2023 quarter, as per initial estimates from the National Statistical Office.

Energy Sector Sinks Amid Falling Oil Prices

All S&P sectors finished November in positive territory with the notable exception of energy. WTI crude oil prices slid 1.95% over the last week of November, extending their losing streak to six weeks with a cumulative loss of 16.54% over the period. The abrupt sell-off came as market concerns shifted from supply risks, in the wake of an intensifying conflict in the Middle East, to the global economy and oil demand. Yet the Organization of Petroleum Exporting Countries and allies (OPEC+) recently agreed to a voluntary output reduction of 900,000 barrels per day in addition to the 1.3 million barrels per day in production cuts already in place.

Although those cuts are projected to counterbalance a crude oil excess in the first quarter of 2024, the supply situation is expected to be less tight than initially forecast. The reason is that the United States, the world's top crude oil producer, is on track to set a new annual oil production record in 2023. October was the highest oil output month in history. Other non-OPEC producers such as Brazil, Canada, and Norway are also recording strong production growth, helping to propel global supply higher by 1.7 mb/day to a record 101.8 mb/day in 2023 according to the IEA (International Energy Agency). This momentum, combined with economic headwinds in the OECD, is pushing oil prices lower.

Real Estate Sector in Recovery Mode

The real estate sector is still one of the hardest hit by rate hikes in 2023, but its year-to-date performance is now in positive territory (+2.39%) as Treasury yields continue to retreat. It’s even the best performer of the week (up 4.64%). This is the third time in November that it ended up in first place for a week. Is this the beginning of the sector’s recovery?

U.S. annual home price growth gathered pace in September, recording a 6.1% increase year on year, an upward revision from the previous month's 5.8% according to the Federal Housing Finance Agency. This highlighted a resurgence in the housing market, giving a boost to the real estate sector. As Treasury yields plunged in November (U.S. 10-year yield down 44 basis points over the month to 4.22%, near lowest in three months), it seems reasonable to think that the rate-sensitive real estate sector may recover in the coming months as it still exhibits a 17.27% year-to-date performance gap to the S&P 500 benchmark index.

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