November 2023 Market Commentary

November’s rally was like a breath of fresh air and brought a much-needed boost to both bonds and equities. One article from Reuters states, “Goldilocks meets Santa as stocks power to best month in three years” and CNBC writes, “November rally set 60/40 portfolio on track for its best month since 2020.” Investor’s exuberance over lower-than-expected inflation data in October sparked a rally that has the bulls anticipating rate cuts sooner rather than later, while the bears are calling for caution, insisting this is only “a bear market rally” with more pain to come in 2024. Regardless, the bond rally that began in November spilled over to stocks, where the S&P 500 and the Dow clinched their best month since July and October 2022, respectively. The TSX jumped a whopping 1,362.82 points to close the month at 20,236.29 and the S&P 500 jumped 374 points to close November at 4,567.80. We note our year end price target for the S&P 500 is 4,550. Indeed, the Santa Claus rally has come early this year and we don’t mind saying we told you so.

There’s a growing consensus that bond yields are expected to fall in 2024, supporting the recent returns for the asset class. With interest rates peaking a month ago and a growing sense that the Federal Reserve might be done tightening as inflation comes down, “we’ve got a whole new market,” says Jim Cramer of the famous Mad Money spot on CNBC. With the waning of the “Magnificent Seven” tech stocks that have reigned supreme over the past several months, it appears the broader market is beginning to catch a bid, as Cramer cites renewed interest in small cap stocks as evidence of his claim. We would also like to point out that back in July, our commentary called for a rebalancing in the MAG7 stocks, with funds finding their way to the broader market in the second half.

With solid U.S. economic performance in the summer, recent data shows the tightness in the labour market is beginning to ease and inflation appears to be receding. The Bank of Canada says its too early to call it a trend and the Federal Reserve maintains further rate hikes are not out of the question. Our perspective is that growth and inflation will continue to slow as excess savings are run down further, and although inflation will likely remain above the central banks 2% target through most, if not all next year, policymakers should be in a position to at least begin looking at cutting rates by mid year in 2024.