December 14, 2021

Monthly Market Summary – November 2021

Inflation data received much attention during November as market participants contemplated the outlook for interest rate increases and the potential for any dampening effect from higher prices on consumer and business sentiment and therefore activity.  Inflation is a worldwide event.  In the U.S, the consumer price index (CPI) rose 6.7% compared to a year ago, the fastest pace since 1990.  The euro zone CPI was up 4.9% year over year, the highest rise since 1997 led by a 27% increase in energy prices.  The inflation rate in the United Kingdom hit a 10-year high of 4.2%.  In Russia, inflation was 8.1% year-over-year.  In China, the producer price index increase of 13.5% from a year ago garnered the most attention since it was the highest increase in 26 years.  Even though the U.S. Federal Reserve view appears to be shifting, many central banks around the world continue to view the unexpectedly high rates of inflation as short-term due mostly to supply chain issues and imbalances in supply and demand related to COVID.Events in November provided a reminder of how quickly things can change in financial markets.  Major U.S. equity indices, such as the S&P 500 and Nasdaq, hit new record highs during the month boosted by robust corporate earnings reports, strong economic reports such as the jobs report that showed the unemployment rate fell to 4.6%, and optimism about a new antiviral pill for treating COVID.  European equity indices also reached new highs on strong earnings reports.  Later in the month, markets turned choppy in reaction to higher-than-expected inflation data, some weaker than expected industrial production reports from Germany, France, and China, and new COVID related shutdowns in Europe and China.  However, major equity and commodity indices still had positive returns for the month going into Thanksgiving.  Then came Black Friday when markets were roiled by news of a new, possibly more contagious, COVID variant named Omicron found in southern African countries.  Stocks and oil prices sold off sharply globally in risk-off trading on worries that this new variant will derail progress in the recovery from the pandemic.  The sell-off continued the last day of November fueled by comments by Federal Reserve Chair Powell that due to higher-than-expected inflation, it was time to “retire” the word transitory when referring to the inflation situation and that stimulus measures could be ended sooner than previously expected.    The late month risk-off trading erased gains from earlier in the month.  For example, the S&P 500 index had a gain of 2.2% for the month through the 24th but ended November with a return of -0.7%.  Smaller stocks fared worse.  The Russell 2000 index had a month-to-date return of 1.6% as of the 24th but ended November down 4.2%.  The Bloomberg Commodity index also fell sharply late in the month.  For the period of November 1 – 24 that index had a return of 0.2% but ended the month with a -7.3% return.  Government bond prices erased declines from early in the month and ended November with gains on flight to safety trading.

Major U.S. equity market indices posted negative returns in November.  Large company stocks declined less than smaller company stocks.  Growth stocks outperformed value stocks in the large capitalization (cap) index.  The opposite occurred in the mid and small-cap indices where value outperformed growth.  In the S&P 500 index, only 2 of the 11 industry sectors generated a gain for the month.  Those sectors were information technology and consumer discretionary.  Financials and energy were the performance laggards.  In the mid and small-cap indices, the communications services sector had the best return and was the only sector to post a positive return.  The energy and healthcare sectors posted the largest declines in both indices.

The MSCI EAFE index of developed international equities ended the month with a return of -4.7% and the MSCI Emerging Markets (EM) index had a return of -4.1% on a U.S. dollar basis.  Local currency returns were higher, though still negative.  Growth stocks outperformed value stocks in the EAFE index.  There was little difference in the growth and value sectors in the EM index.  All 11 sectors in the EAFE index had a negative return for November.  The communication services sector had the best return while energy had the lowest return.  One sector, information technology, had a positive return in the EM index.  The consumer discretionary sector was the performance laggard in the EM index.  On a geographic basis, among developed international markets, the Far East region outperformed both the euro area and the Pacific ex Japan region.  In emerging markets, the Latin America index boosted by a strong gain for Chile, outperformed the Emerging Europe and Middle East index.

U.S. bond market sector returns ended mixed for November after various up and down price movements during the month in reaction to inflation data, Federal Reserve member comments, and COVID news.  Treasury bond yields moved higher (and prices moved lower) early in November as inflation news and strong job market data increased expectations for interest rate hikes sooner than previously forecast.  The yield on the 10-year Treasury bond moved as high as 1.67%.  However, yields fell sharply after the new COVID variant news and the comments by Federal Reserve Chair Powell that inflation may not be transitory.  The yield on the 10-year Treasury bond was 1.43% at month-end.  In the Treasury bond sector, all but the shortest-term indices ended the month with gains.  The longest-term indices posted the highest returns.  Short-term corporate bonds had small negative returns while the corporate high yield index had the largest negative return among indices we track reflecting weakness in equity and energy markets.  The mortgage-backed securities index also had a very small negative return.  The municipal bond index ended with a return of just under 1%.

The Bloomberg Commodity index generated a return of about -7.3% for the month.  The agriculture, energy, industrial metals, and precious metals sub-indices all posted negative returns due mostly to the reaction to COVID news.  The energy sub-index was the performance laggard declining over 17% as both oil and natural gas prices dropped.  The price for West Texas Intermediate crude oil dropped to $67 per barrel at the end of November from $83 at the end of October.  New COVID related shutdowns in Europe and China contributed to the price decline as did an increase in oil inventories.  However, the biggest price drop occurred in reaction to the Omicron variant and the related newly imposed travel bans in numerous countries.  The precious metals sub-index posted a negative return for the month despite an increase in the price of gold in reaction to COVID news since silver had a sharp price drop.

Vogel Consulting, LLC (Vogel) Tactical Recommendations

Even though various economic data, such as low inventory levels, strong demand for labor, and the need for capital spending to offset labor shortages, point to continued growth potential, significant uncertainties remain, as the Omicron and inflation news reminds us.  With valuations generally high after the gains since the pandemic lows, periods of volatility in reaction to unexpected news are expected.  Therefore, we continue to prefer to have a diversification of exposure to sectors benefiting from secular growth trends along with some exposure to cyclicality to participate in economic growth.  Within the equity allocation, we recommend an equal weight position relative to long-term targets to U.S. large-cap, mid-cap, and small-cap stocks, as well as to developed international and emerging market equities.  Within our fixed income recommendation, we continue to favor short to intermediate maturities.  We continue to recommend an underweight allocation to hedge funds.  We recommend keeping at least a year of cash reserves to avoid having to raise cash during a period of market volatility.


The statistical information contained in this commentary has been compiled from publicly available sources and is presented to you for your review and for discussion purposes only. The information contained in this commentary represents the opinion of the author(s) as of its date and is subject to change at any time due to market or economic conditions.  These comments do not constitute a recommendation to purchase, sell or hold any security, and should not be construed as investment advice or to predict future performance.  Past performance does not guarantee future results.


The statistical information contained in this commentary was derived from sources that Vogel Consulting, LLC believes are reliable, and such information has not been independently verified by Vogel.  Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of the Russell Investment Group.  An index is not managed and is unavailable for direct investment.