The month of November contained two distinct periods for U.S. investors – pre-election and post-election. Prior to the election, domestic equity markets were declining and bond yields were fairly flat. On election night, upon the realization that Donald Trump was going to be the next president, U.S. equity market futures dropped precipitously – down more than 5% at one point. Markets calmed by the next morning, opened flat and proceeded to finish the day with a nice gain. Equity markets continued to rise throughout the remainder of November on anticipation of projected stimulus from Trump’s stated policy priorities. Outside of the election, economic news was relatively benign, with the Fed leaving rates unchanged after its November 2nd meeting. Positively, housing continues to tick along at a moderate pace, and the unemployment rate fell from 4.9% to 4.6%, the lowest since 2007. The good news was tempered by slower than expected wage growth and flat industrial production. Given that inflation has increased somewhat since the beginning of the year, most prognosticators expect the Fed to increase its target rate by 25 basis points at its December 13th-14th meeting. Near the end of the month, OPEC & Russia finalized an agreement to curb production (the 1st cut by OPEC in 8 years), causing WTI crude to gain almost 10% and finish the month at just under $50/barrel.
Domestic equity markets staged a reversal in November after declining in October, with all of the major US indexes posting impressive post-election gains. Small-cap stocks showed the largest gains, with the Russell 2000 rising 11%+ in the month and 18% YTD. International stocks generally lagged in November on dollar strength. Seven of the 11 sectors in the S&P 500 showed gains for the month, with wide disparity among sector performance. Financials were up almost 14% on expectations for less regulation and higher interest rates, Energy was up over 8% after the OPEC agreement, and Industrials and Materials were up approximately 9% and 7%, respectively on Trump’s promise to increase infrastructure spending. The worst performing sectors were Utilities, down almost 5.5% and Consumer Staples, down over 4%.
Post-election, the markets experienced a quick rise in interest rates as President-elect Trump has made his intentions clear to spend money and cut taxes. Although rates moved quickly to the upside, they are, at most points along the yield curve, within 10 basis points of where we started the year. The 10-year Treasury closed the month at 2.37%, up from 1.84% at the end of October and 2.27% at the start of 2016. Interestingly, this is lower than where most experts predicted we would be at the start of this year. The market is currently pricing in a certain Fed rate increase in December (Fed Futures predict a 100% chance of a 25bps hike). Despite the dramatic November increase in rates, there are multiple market influences still at play that could mute this quick rise in rates— namely, a backdrop of low global interest rates and continued dollar strength.