Market Review - November 2022
Source: Zephyr Style Advisor
November was a strong month for equities, despite ongoing concerns surrounding inflation and central bank policy action. Emerging market equities were up 14.8%, outperforming both international developed equities (11.3%) and the US (5.6%) during the month. The rally in emerging market equities was led by China, up 29.7% for the month. This surge can be attributed to Chinese lawmakers signaling that they may begin to ease its Covid-19 restrictions¹,². In international developed markets, Hong Kong's Hang Seng Index had its best month since October 1998, up 26.6%, which also was tied to news of China potentially loosening its strict zero-Covid-19 policy.³
Within the S&P 500, all eleven sectors were positive for the month. The sector rallies were helped by a weaker-than-anticipated October US inflation report⁴. Materials and industrials led and were up 11.8% and 7.9%, respectively, in November, while consumer discretionary was the weakest, returning 1.0%. Energy had modest gains this month (1.3%) and is now up 70.7% for the year. Looking across style, large value outperformed large growth in November. Companies like Boeing, which rallied over the month, are considered large value (and part of the industrials sectors), which helps explain outperformance across size, style, and sector.
Bonds reversed course during the month and saw gains across all major markets. Emerging market bonds led and were up 6.6% in November, its best month in 24 years⁵, outperforming international bonds (5.6%) and US Bonds (3.7%). Even as the Fed (Federal Reserve) increased rates by 75 basis points in November, US fixed income rallied as investors responded positively as they took note of Fed Chair Powell indicating the Fed will slow the pace of rate hikes as soon as December⁶. All major US bond sectors saw gains in November, led by long Treasuries up 7.1% for the month.
The broad commodity index was up 2.7% in November, led by industrial metals (up 14.5%). Gold also was up by 6.8%. Typically, there's an inverse relationship between the US dollar (which was down -4.7% for the month) and gold, which helps explain the metal's positive returns. The US dollar subsequently had its worst month since September 2010⁷. US REITs rose 6.0% in November but are down -21.0% for the year, hurt by 2022's elevated inflation.
Relative to a globally balanced (60/40) equity/bond index, allocations to global equities and gold helped in November, while global bonds, commodities, and US REITs hurt.
Source: Zephyr Style Advisor
[1] Rothschild and Co. - Monthly Market Summary: November 2022
[2] CNBC - China signals slight COVID policy easing, without any major change
[3] CNBC - Hang Seng still in bear market territory despite best month since 1998
[4] CNBC - Key inflation measure that the Fed follows rose 0.2% in October, less than expected
[5] Financial Times - Emerging market stocks and bonds stage powerful rebound rally
[6] Reuters - Stocks rally, yields and dollar fall as Powell signals slower hikes
[7] Reuters - Dollar dips as Powell says rate hikes may slow
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