One of my friends messaged me last week and said, “Can I please have several more Novembers?” Yes, the markets in November were that good.
Both stocks and bonds had solid gains in November. The Russell 2000 Small Cap Index has gained over 11% since the end of October, and the S&P 500 has gained almost 9%.
After one of its best months in decades, Small Caps is up almost 3% so far in December, beating all the other major categories. Investors are feeling more confident that the Federal Reserve will begin shifting away from rate hikes and toward rate cuts. When the Fed lowers rates, it will pull long-term interest rates down and greatly help mortgage rates, breathing life back into the housing market.
Companies in the small-cap index have been helped by the market’s belief that rates are about to start lowering since they are more rate-sensitive than large-cap stocks. Not only that, but small-cap valuations are looking more attractive. The S&P Small Cap 600 Index (which has a more profitable company mix than the Russell 2000) is trading at a 30% discount compared to the S&P 500. This small-cap rally may have legs in the short term, but I will continue to keep my accounts underweight to small caps until I see how they do in early 2024.
Looking ahead, the lower gas prices, falling goods prices, higher stock values, and rising wages should keep the momentum going for more stock gains in the coming year. I’m reminded of Warren Buffett’s sidekick, Charlie Munger, who passed away last week. “The world is full of foolish gamblers, and they will not do as well as the patient investors.”
When I think of good Novembers, I think of opening the mason jar of green beans and pouring it into the pan. Looking at those green beans we grew, picked, and snapped, I knew we were about to enjoy the fruits of our labor finally. November and December are a time for us to enjoy the fruits of our labor in the market over the year.
I can’t guarantee several more November returns for my buddy, but patient investors have been rewarded in 2023 and will continue to be. No one knows what will happen through the end of the year, but stocks historically do well in December, even after strong gains the month prior. This would be a fitting end to what has been a great year for the stock market.
Have a blessed week!
Dr. Richard Baker, AIF®, is the founder and executive wealth advisor at Fervent Wealth Management.
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
Opinions voiced above are for general information only & not intended as specific advice or recommendations for any person. All performance cited is historical & is no guarantee of future results. All indices are unmanaged and may not be invested directly.
The economic forecast outlined in this material may not develop as predicted & there can be no guarantee that strategies promoted will be successful.
Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.
