Broad equity indices recouped much of the losses from the prior three months in November as investors once again bet the Fed was done hiking interest rates and would begin cutting in 2024. Easing inflation, slowing job growth, and another Fed “pause” prompted a 54 basis-point drop in the 10-year Treasury yield in November, with the Bloomberg U.S. Aggregate Bond Index producing its highest one-month return (+4.53 percent) since 1982. The S&P 500 Index posted its best November return since 2020, when Pfizer released positive test results for its Covid-19 vaccine candidate, and its second-best since 1980. Predictably, rate-sensitive sectors led the November rally, with every GICS sector in the S&P 500 except energy generating a positive one-month return.
The equity market will likely remain in a trading range following the big November move. We see calendar fourth-quarter earnings reports and 2024 guidance as the next hurdle for stocks, with forward earnings probably still too aggressive. As for portfolio positioning, we remain overweight technology “winners” but see a potential to take near-term profits in some stocks. We are also incrementally more positive on the transportation sector (excluding airlines) as the “freight recession” is far along, with inventory destocking in the late innings. Finally, we are cautiously positioned in consumer cyclicals, as dwindling excess savings, deteriorating credit, and slower job/wage growth will pressure spending.
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