Commonwealth Market Updates
November was a strong month for markets, as news about developmental vaccines for the coronavirus caused markets to surge. The S&P 500 gained 10.95 percent in November, and the Nasdaq Composite rose by 11.91 percent. The Dow Jones Industrial Average led the way with a 12.14 percent gain. These strong results brought the three indices to all-time highs.
These market gains were accompanied by improving fundamentals. According to Bloomberg Intelligence, as of November 24 with 97 percent of companies having reported results, the blended third-quarter earnings decline for the S&P 500 sits at 7.3 percent. This is notably better than analyst estimates at the start of earnings season for a 21.5 percent drop during the quarter. Roughly 85 percent of companies are beating expectations.
Technical factors were also supportive for markets during the month. The three major indices remained well above their respective 200-day moving averages in November, marking five straight months where all three indices finished the month above trend. The 200-day moving average is a widely followed technical indicator, as sustained breaks above or below this level tend to signal shifting investor sentiment. The continued technical support for equity markets since reopening efforts took hold indicates that investors remain confident in U.S. companies and their ability to withstand the pandemic.
The story was much the same internationally. Positive vaccine news pushed global equity markets higher during the month. The MSCI EAFE Index gained an impressive 15.50 percent in November, which caused the index to pass pre-pandemic levels for the first time. Emerging market investors also celebrated the vaccine news, with the MSCI Emerging Markets Index gaining a strong 9.25 percent. Both of these indices finished the month above their respective 200-day moving averages, indicating solid technical support. This was a welcome rebound for the MSCI EAFE Index, which ended October below its 200-day moving average.
Fixed income also had a positive month, supported by falling interest rates. The 10-year Treasury yield fell from 0.88 percent at the end of October to 0.84 percent at the end of November. The Bloomberg Barclays U.S. Aggregate Bond Index gained 0.98 percent during the month. High-yield bonds, which are typically less tied to movements in rates, also had a positive month. The Bloomberg Barclays U.S. Corporate High Yield Index returned 3.96 percent in November. High-yield spreads narrowed to their lowest level since February, indicating that investors’ tolerance for higher-yielding, riskier securities rose during the month. This makes sense, given the rally in equity markets we saw in November.