November Continues to Show Promise for Stocks
November: A potential relief for investors as historical trends suggest a positive turn, offering hope after losses over the summer
Wall Street once again finds itself with the calendar in its favor.
During the late summer months, the US stock market experiences increased volatility due to a lack of economic news and earnings to stimulate a rally. Additionally, lower trading volumes caused by investors going on vacation result in more erratic trading patterns. This year, the market followed this seasonal trend closely as it reached its highest point on July 31 and has since faced difficulties maintaining stability. The S&P 500 index recently recorded its longest consecutive decline since March 2020, and the Dow Jones Industrial Average has relinquished a significant portion of its earlier gains.
Examining the seasonal patterns for this month indicates that there may be a shift in the tides.
According to LPL Financial, November has consistently been the most robust month for stocks since 1950. In the past 11 years, the benchmark index has only experienced a decline during this month once, which occurred in 2021. Additionally, data from Bespoke Investment Group reveals that the Dow, a prominent blue-chip index, has historically achieved an average gain of over 1% during November over the course of the last century.
In just two trading days, the market is already showing signs of promise. On Thursday, the S&P 500 soared by 1.9%, marking its strongest one-day gain since April. The Dow also saw growth, adding 1.7%, the best daily increase since June.
This rally can be attributed to investor optimism regarding the Federal Reserve's decision to halt interest rate hikes for the remainder of the year. After the central bank's consecutive pause during their recent meeting, the benchmark lending rate remains at its highest level in over 22 years.
Markets are indicating an approximately 80% expectation that the Fed will maintain rates at its December policy meeting, and they are already factoring in potential rate cuts as early as March, according to the CME FedWatch Tool. This is in contrast to Fed Chair Jerome Powell's recent warning that the central bank has not yet considered reducing rates.
Furthermore, the slide in bond yields following the Fed's decision to pause is also contributing to the rise in stocks. On Thursday, the yield on the 10-year US Treasury note dropped to 4.67%, compared to Wednesday's close of 4.79%, which is well below the significant level of 5% that it breached last month. Additionally, lower oil prices, which have decreased by approximately 3% this week, may provide further support.
"Stocks may be nearing oversold levels after enduring three consecutive months of selling pressure," stated George Smith, a portfolio strategist at LPL Financial.
Further promising signs can be found in seasonal patterns, as CFRA data reveals that the S&P 500 has recorded an average 6.7% gain from November to April since 1990.
History serves as a guide rather than a crystal ball for predicting the future, acknowledging the uncertainties ahead.
According to Mike Wilson, the chief US equity strategist at Morgan Stanley, the likelihood of a fourth-quarter rally has diminished. He points to factors such as declining consumer and business confidence, a narrowing market breadth, and the enduring consequences of the Federal Reserve's interest rates as obstacles that outweigh any seasonal optimism.
"We remain comfortable with our long-standing 3,900 year-end target for the S&P 500," he wrote in a note on October 29. The S&P 500 closed Thursday at about 4,318.
Disney to acquire remaining stake in Hulu
Disney has announced its plans to purchase Comcast's one-third stake in Hulu for approximately $8.61 billion. Upon completion of the transaction later this year, the streaming service will become fully owned by Disney, according to CNN's Liam Reilly and Oliver Darcy.
Disney stated in a brief statement that acquiring Comcast's stake in Hulu at fair market value will advance its streaming goals. The deal, finalized on Wednesday, concludes the longstanding speculation surrounding Hulu's future. However, a valuation process is still pending and anticipated to conclude in 2024, which will thoroughly evaluate the streaming service's fair worth before agreeing upon a final sale price.
Comcast expressed anticipation for the appraisal process and the assessment of Hulu's fair market value, expressing confidence that it would accurately represent the exceptional value of the company, according to a statement. Learn more by clicking here.
Bank of England downgrades UK economic growth forecast
On Thursday, the Bank of England revised its projections for economic growth in the UK, downgrading them. Despite concerns over the Israel-Hamas conflict potentially raising energy prices, the bank decided to maintain the existing interest rates. Additionally, the bank indicated that it may take another two years for inflation to reach its targeted levels again.
According to my colleague Hanna Ziady, the central bank predicts that the gross domestic product remained stagnant in the July-to-September quarter and anticipates a mere 0.1% growth in the current quarter. These projections are gloomier than the ones made in August. Bank of England Governor Andrew Bailey informed reporters that there are apparent indications that higher interest rates are negatively impacting economic activity, which is reflected in weaker activity data and various business surveys.
After implementing 14 continuous interest rate increases, the bank ceased further hikes in September. According to their analysis, they believe that more than half of the consequences of elevated borrowing costs on GDP are yet to affect the economy. This implies that the potential slowdown in growth could intensify.
