NEI Monthly Market Insights: November 2023

Dec 19, 2023

Markets staged a remarkable November rally

Markets rallied sharply in November, driven by falling inflation data and comments from Fed officials suggesting they may soon reach the end of this tightening cycle. Major stock indices, especially the S&P 500, saw solid gains returning 8.9% for the month, while Nasdaq also rallied by 10.7%. Bond yields declined on lower-than-expected inflation, with the US 10- year Treasury yield dropping below 4.4% by the end of the month after hitting a peak of 5% in late October. Fixed income investments rallied from lower yields and increased expectations for rate cuts in 2024. Global Bond Index returned 5.0%, and Canadian Bond Index returned 4.4% in the month. Investment grade credits gained 5.98% and rising hopes for a soft landing supported high yield bonds where spreads tightened, returning 4.53% in November. Emerging market debt instruments also had a positive month thanks to more accommodative local central bank policy and a weaker U.S. dollar.

The NEI perspective

The miraculous “soft landing” appears to be actually happening as the disinflationary trend continues to signal that underlying inflationary pressures are easing while economic growth continues in the U.S. amid a strong labour market.

Cracks starting to show in consumer spending as business inventory-to-sales ratios are rising despite strong retail sales data, while credit card delinquencies in the U.S. are also beginning to rise again as consumers spend the last of their pandemic savings.

Investors should move off the sidelines after piling a historic amount into money market funds over the last two years to take advantage of high interest rates, the return potential in risk assets should spur investors to redeploy their capital as rates are expected to fall.

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