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Wall Street to Your Street


November Market Recap: Stocks Continue Upward Momentum

Stocks continued their positive performance in November amidst signs of a strengthening economy. Every sector of the S&P 500® posted gains in November. 

BullWith the S&P 500 up 2.81% for the month, the market has climbed 18.26% through the first 11 months of the year. The current bull market is the second longest in modern history, beginning March 9, 2009 and continuing 104 months through November without experiencing a single drop of 20% (or more) from a closing high.

The market this year has been bolstered by several key sectors. Leading all sectors of the S&P 500 is Information Technology, up 38.82% for the year, followed by the Materials, Health Care, Consumer Discretionary, Financials, and Utilities sectors, which are all up around 20%. (See S&P 500 Sectors chart below.)

The market gains have been driven by rising corporate earnings and some positive economic trends, including improving gross domestic product (GDP) growth, a strong job market, solid retail sales and consumer spending, and a rebound in the oil industry. Optimism over the prospects for passage of tax reform legislation that would reduce corporate tax rates may also have contributed to the stock market’s ascent.

GDP growth for the third quarter was revised up from 3.0% to 3.3%, according to a November 29 report from the U.S. Department of Commerce.

Here are some other highlights from the month covered in more detail Exhibit 1later in this report (Exhibit 1):

      • Retail sales return to normal. After a surge in retail sales in September during the hurricane recovery efforts in Texas and Florida, sales returned to normal in October, with a 0.2% monthly increase, according to the U.S. Department of Commerce.
      • Employment growth rebounds. The employment rate dipped to just 4.1% as employers added 261,000 new jobs in October.
      • Bond yields inch up. The yield on 10-year U.S. Treasuries inched up slightly for the third consecutive month in November, ending the month at 2.42%. The Federal Reserve is expected to approve a small increase in the federal funds rate in December.
      • Oil continues to recover. Oil prices rose for the third consecutive month, as the global oil surplus continued to decline.

Drilling down

U.S. stocks move up again

Exhibit 2The S&P 500 had another solid gain in November, from 2,575.26 at the October close to 2,647.58 November 30 – a 2.81% rise (Exhibit 2). The total return of the index was 3.07% for November and 20.47% for the year.

The NASDAQ rose 2.17% in November from 6,727.67 at the October close to 6,873.97 on November 30. The NASDAQ is up 27.69% through the first 11 months of 2017.

Retail sales normalize while still rising

Retail sales were up 0.2% in October1, as conditions began to return to normal in the hurricane-affected areas of Texas and Florida.  The previous month, retail sales had spiked 1.9% in the wake of the hurricanes, as sales of automobiles, auto parts and building supplies all surged.  (See Retail Sales Have Big Jump in Wake of Hurricanes)

Year over year, retail sales are up 4.6%.

Personal consumption expenditures also continue to edge up, and have increased for 32 consecutive months through October, according to the U.S. Bureau of Economic Analysis report issued November 30.

Employment growth rebounds

Employment growth recovered in October from a hurricane-impacted lull in September, with 261,000 new jobs added for the month, according to the U.S. Bureau of Labor Statistics Employment Situation Report issued November 3. The September number, which was originally reported as a 33,000 decline in jobs, was revised up to an 18,000 gain for the month.  That means jobs have increased for 85 consecutive months.

The unemployment rate also dropped to 4.1% in October, the lowest level since December 2000. The drop in unemployment was partially attributed to a decline in labor force participation, as 765,000 people dropped out of the labor pool.

But wages were still in slow growth mode, as the average hourly earnings for all employees on private nonfarm payrolls declined by $0.01 to $26.53. Over the past 12 months, average hourly earnings have increased by $0.63, or 2.4%. (See Job Growth is Back on Track With 261,000 New Jobs in October)

All sectors move up Exhibit 3

Every sector of the S&P 500 posted gains in November, led by Telecom Services, which had been the worst performing sector throughout 2017. Telecom was up 6.03% for the month, followed by Consumer Staples, up 5.67%, Consumer Discretionary, up 5.06%, and Industrials, up 3.86%.

Exhibit 3 shows the results for all 11 sectors.

Bond yields rise for third straight month

The yield on 10-year U.S. Treasuries inched up slightly for the third consecutive month in November, ending the month at 2.42% after closing Exhibit 4October at 2.38% (Exhibit 4). That represents a significant increase over the August close of 2.12%.

The Federal Reserve is expected to increase rates in December for the fourth time in the past 13 months. The Fed raised the federal funds rate by 25 basis points (0.25%) last December and again in March and June of 2017 to a new range of 1.00% – 1.25%.  (See December 2017 Outlook: Federal Reserve Likely to Raise Rates as Economy Strengthens)

Oil keeps climbing

Exhibit 5Oil prices continued to move up in November, with a 5.55% gain in the price of West Texas Intermediate –from $54.38 per barrel at the end of October to $57.40 at the close of November (Exhibit 5). Prices had increased by 9.40% in September and 5.24% in October.

The rise in prices is due to production limits by OPEC and Russia, combined with upwardly revised GDP-driven demand, that have materially reduced oil inventories by over 200 million barrels over the past several months.  OPEC’s semi-annual meeting on November 30th extended production limits Exhibit 6through year-end 2018.  With additional demand growth in 2018 and 2019, oil markets should be balanced looking out to 2019, even with U.S. production increasing.

Gold prices stagnant

Gold prices remained fairly stagnant in November, edging up 0.48% from $1,270.50 at the close of October to $1,276.70 at the end of November (Exhibit 6).

International equities still rising

Exhibit 7

The international stock markets moved up again in November, as the MSCI EAFE Index gained 0.88% – climbing from 2,002.54 on October 31 to 2,020.13 at the close of November (Exhibit 7). The MSCI EAFE is up 19.96% for the year.

Outlook from Chief Investment Strategist—Mark Simenstad

(See: December 2017 Outlook: Federal Reserve Likely to Raise Rates as Economy Strengthens)

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