Market Outlook - November 2023

At the end of November, the Treasury rally continued into December with the market now seeing Fed cuts less than six months away. Market bets increasingly reflect expectations for a first Fed cut in May 24’ with nearly 100 bp in easing seen for the full year. In addition, bullish sentiment hit its highest levels since late July, no surprises there and the Investors Intelligence Bulls jumped to 55.7% in the latest survey, which is up from 52.2% only a week ago. To put things in perspective the bulls’ investors intelligence reading fell below 43% in September and October as major indexes corrected more than 10%. Easing inflation, disinflation traction, and surprise momentum are still the key factors for the bullish stock narrative. Seasonality is another bright spot, along with stability of 2024

consensus earnings estimates. Meanwhile, the markets continue to look past the bubbling Mideast unrest, as Israel prepares to expand its operations in the Gaza strip amid international calls for a ceasefire. Despite the broad Mideast unrest and multiple links to Iran as a major regional actor, the markets still seem unconvinced a wider conflict is set to emerge. We note crude has been trading more in response to demand worries, rather than concerns about flow stability. According to EPFR Global, global equities attracted $2.6B in the week-ended 29-Nov2023.

 

The U.S. is still the preferred destination, attracting another $8.3B for a seventh straight week of inflows. U.S. equities saw inflows of $57B+ in the month of November. Global bonds attracted $3.7B for the eighth straight week of inflows. High Yield and Investment Grade were the standouts with the pickup in risk sentiment and while government bonds saw a small inflow, there was a $2.5B+ exodus in November. All this to say, the year end is looking much better after November’s rally and investor’s risk appetite is growing. According to Bespoke Investment Group, the S&P 500 has historically averaged a 1.29% gain in December with positive performance nearly 74% of the time. In other words, enjoy the continued Santa Claus rally.

 

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