The Resurgence of the 2023 Stock Rally

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The US stock market has bounced back after a prolonged slump.

Stocks ended their best month of the year on Thursday, snapping a three-month decline for all major indexes. The benchmark S&P 500 index is now close to where it peaked mid-summer, before negative seasonal trends and fears of continued interest rate hikes by the Federal Reserve impacted markets.

In November, the S&P 500 soared 9% and the Nasdaq Composite rose 10.7%, marking their best one-month gains since July 2022. The Dow Jones Industrial Average also saw an 8.8% increase, its strongest monthly jump since October 2022.

Global markets also experienced a robust month, with the MSCI All-Country World index showing a 9% increase in November, marking its best monthly performance since April 2020.

Another contributing factor to the swift stock market recovery is the decline in Treasury yields from their 16-year highs. Investors are optimistic that the Federal Reserve, in response to recent data indicating slower inflation, has completed its rate hikes and will successfully achieve a soft landing, bringing inflation down to its 2% target without leading to a recession.

The latest inflation report has fueled further optimism, as the Personal Consumption Expenditures Price Index revealed a decrease in inflation last month, marking the lowest level since spring 2021.

As a result, the yield on the benchmark 10-year US Treasury note dropped to 4.35% on Thursday, a significant decrease from last month's 4.88%. This represents the largest monthly drop since August 2011, according to Tradeweb.

This year, the S&P 500 has increased by 19%, the Dow Jones Industrial Average has risen by 8.5%, and the Nasdaq Composite has jumped by 36%.

"The rally can only continue if the bond market remains stable," explained Richard Steinberg, the chief market strategist at The Colony Group.

The stock rebound's wide reach is a promising sign for its staying power. Earlier this year, the "Magnificent Seven" tech stocks drove nearly all of the market gains, but the recent rally has included a broader range of stocks. This includes long-neglected sectors such as financials, small-caps, and cyclical stocks, which have seen significant gains in recent weeks.

The proportion of stocks in the S&P 500 that are trading above their 200-day moving averages, a commonly referenced indicator of market breadth, stands at 60%, as reported by CappThesis data.

Additionally, year-end calendar effects are working in favor of the market this month. Historically, stocks tend to experience an increase from late December through early January, known as the Santa Claus rally, as investment bonuses are distributed and Wall Street is lifted by holiday-induced optimism.

However, a recession cannot be ruled out entirely, and some investors caution that Wall Street may be prematurely expecting rate cuts. According to the CME FedWatch Tool, traders have factored in rate cuts starting at the beginning of next year. In a note last month, Ned Davis Research strategists stated, "A smooth landing is not assured. While our macro team considers the risk of a recession to be minimal in the near future, they anticipate an increase later in 2024."

OPEC+ members agree to more oil production cuts

In the first quarter of 2024, the oil-producing group announced that several OPEC+ countries have agreed to voluntarily reduce oil production by a total of 2.2 million barrels per day.

Saudi Arabia, the largest global exporter of crude oil, will take the lead in extending a voluntary 1 million barrels per day production cut, initially intended to last until the end of December, by an additional three months, as announced by OPEC+ in a statement. The Kingdom's production will remain at approximately 9 million barrels per day until the conclusion of March 2024, according to the state-run Saudi Press Agency report, which cited an official Ministry of Energy source following a meeting with other prominent oil-producing nations in Vienna on Thursday.

Alongside Saudi Arabia, the following countries have volunteered to cut their daily oil production: Russia by 500,000 barrels; Iraq by 223,000; United Arab Emirates by 163,000; Kuwait by 135,000; Kazakhstan by 82,000; Algeria by 51,000; and Oman by 42,000, according to OPEC+.

It was also announced that Brazil, another major oil producer, will be joining the production cuts at the beginning of next year, as reported by my colleagues Anna Cooban and Elisabeth Buchwald. A CEO of Brazil's state-owned oil company, Petrobas, was quoted by Reuters saying that Brazil's production will not be tied to OPEC quotas.

Read more here.

Nelson Peltz renews proxy fight against Disney

Trian Fund Management, led by activist shareholder Nelson Peltz, has initiated a fresh proxy battle against Disney. This comes shortly after Trian had withdrawn its previous push, following CEO Bob Iger's announcement of a significant cost-cutting strategy for the media conglomerate.

Trian expressed in a press release on Thursday that investor confidence is waning, crucial strategic issues are looming, and even Disney's CEO acknowledges that the Company's challenges are more substantial than previously thought.

Trian refused to provide details on the number of seats it is pursuing on Disney's board, but stated in the press release that Disney has rejected its request for representation, including for Peltz. Disney's shares saw a 0.2% increase on Thursday afternoon.

Trian is renewing its proxy fight the day after Disney announced changes to its board, including the addition of Morgan Stanley CEO James Gorman and former Sky CEO Jeremy Darroch as new directors. In reaction to these additions, Trian stated that they do not improve investor confidence or address the fundamental issues leading to substantial loss of value and mismanagement by the Board.

Read more here.