Investors were optimistic when trading opened in November. October had just delivered its best monthly return in a year.
Interest rates were still low even as the Federal Reserve began warning it was time to prepare for 'normalized' rates – a polite way of saying that interest rates would rise next year. Employment grew, unemployment claims fell and wages rose.
The excitement increased as the major averages continued to reach new highs. The index rose a whopping 4.6% for the month on November 19.
In the middle of the month, inflation concerns – centered around rising gasoline prices, higher food prices and skyrocketing housing costs – started weighing on inventories. Then, last Friday, suddenly, after news of a new, potentially vaccine-resistant COVID-19 variant, Omicron, surfaced, the bottom appeared to be out of the market. Faster tightening on Tap
Stocks fell again on Tuesday to close out the month.
That happened in part after the Financial Times was told on Monday by Stéphane Bancel, CEO of Moderna (NASDAQ:) that existing immunizations may not be as effective against the Omicron variant as they are against other strains. Investors quickly retreated to risk positions after fears subsided during Monday's trading.
Perhaps a bigger market catalyst, though, was Fed Chair Jerome Powell, who emphatically told the Senate Banking Committee on Tuesday that the Fed wanted to curb inflation and set the clock to a first rate hike earlier than expected.
As a result, there was another nasty sales attack yesterday. As the markets closed to close in November, the sale wiped out monthly gains for the NASDAQ and significantly reduced returns for the NASDAQ 100.
Nevertheless, barring a disaster in December, stocks are poised for a strong performance in 2021. The S&P 500 is up 21.6% since the start of the year. The Dow is up 12.7% and the NASDAQ is up 20.6%. The NASDAQ 100 is up 25.2%.
Selling pressure since Friday reflected the following unknowns:
1. How dangerous the variant could actually be and whether existing vaccines would continue to offer sufficient protection. Investors' jitters were visible through stocks of cruise lines, airlines and other travel-related names.
Even entertainment giant Disney (NYSE:) was hit. Shares of the entertainment giant ended 2% lower to $144.90 Tuesday after a 52-week low of $143.11.
2. When and how will the Fed take action to curb inflation?
The short answer to the central bank's question: Powell told a Senate hearing Tuesday — shocking markets in the process — that the economy may be too hot. So the Fed will first stop buying bonds to help support the economy, the Fed chairman said. The process, known as tapering, is expected to end next spring.
Once the Fed stops buying bonds, the Central Bank will raise interest rates. It is not clear how soon after that and how high the rates can go. Wall Street doesn't see huge rate hikes, because that could derail everything.
For the record, the benchmark Treasury note closed at 1.477% on Tuesday, well above its March 30 peak of 1.766%.
Powell's very deliberate remarks should not have been surprising. He had said after the Fed meeting in early November that the central bank would not pump billions of dollars a month into the economy.
After Powell's testimony on Tuesday, it was difficult to find a rising share. Apple (NASDAQ:) was the best Dow stock on the day. Merck (NYSE:) had a small profit. But energy and financial stocks were the weak performers and sectors of the day.
Energy stocks fell as crude oil plummeted. The story for the month was no better, with a 21% drop to $66.18 a barrel of 42 gallons during the month, surprising traders who had speculated that oil could hit $90 a barrel or more. (Still, retail gasoline held steady at $3.39 a gallon, according to AAA's Daily Fuel Gauge Report.)
Many other commodities were also lower, including a 7.3% decline. But rose 13.9% to $2,324 a pound.
It was even hit by the November sell-off, peaking at $68,925 on November 10 and falling 17.1% in the rest of the month to $57,144.
Don't cry too much about crypto players, but Bitcoin is up 97.3% this year.
Semiconductors, technology and housing were the sector leaders. Laggards included energy, aerospace, resource stocks and biotech companies. Splits and spin-offs are rising; Escalating IPOs
Another unexpected development in November: Four megacap companies announced they were either splitting their businesses or completing the effort: IBM (NYSE:) completed its Kyndryl (NYSE: ) spin-out, as Toshiba (OTC:), Johnson & Johnson (NYSE:) and General Electric (NYSE:) announced they were headed for business splits. The idea is that breaking the companies will unlock hidden value so far.
None of the four received much reward for their decisions. Newly split IBM/KD shares fell 6.4% and 48% respectively. Shares of General Electric fell 9.4%. JNJ shares fell 4.3%; their breakup will not occur until 2023. Toshiba's US stocks fell 7.9%.
The IPO market was very active. Renaissance Capital says 388 companies have gone public through traditional IPOs. Another 558 went public by merging with Special Purpose Acquisition Companies (SPAC). Both are at record levels. That said, many IPOs have struggled when they debuted in the public markets.
The Renaissance Capital IPO index fell 5.6% in November, after a 6.6% gain in October.
IPO Index vs. SPX 1Y Chart
Chart courtesy of Renaissance Capital
For the year, the index is down 7.67%. Renaissance also sponsors an exchange-traded fund, Renaissance IPO ETF (NYSE:), which buys shares in publicly traded companies. The ETF fell 8.1% in November after gaining 6.6% in October. For the year, the ETF is down 2.3%.
There was one major exception: electric truck manufacturer Rivian Automotive (NASDAQ:) went public on Nov. 9 for $78 and ended the month at $119.76, up 55%.
Its market cap of $105.8 billion is larger than General Motors (NYSE:) and Ford (NYSE:), even though it has minimal production and faces heavy investment needed to build manufacturing facilities. Still, stocks rose 53% in the month.
Rival Lucid Group (NASDAQ:), which aims to sell luxury electric cars, rose 42% in November after gaining 43% in October. The company went public in July through a SPAC merger. Since then, the shares have doubled.
Here's what else an investor would like to know about market activity in November:
Large cap stocks were the biggest drivers of the market. Chipmaker NVIDIA (NASDAQ:), a major provider of the fast-growing infrastructure surrounding cryptocurrencies, added 27.8% on top of a 23.4% gain in October. Apple rose about 10.35% after a 6% gain in October. Microsoft (NASDAQ:) added 5.9%. Costco Wholesale (NASDAQ:) rose 9.7%.
Who is on top? Apple again. The iPhone/iPad behemoth recaptured the title of most valuable US stock from Microsoft, which had become number 1 on October 29. Apple's market cap reached $2,629 trillion. Microsoft stood at $2.527 trillion. Amazon (NASDAQ:), Google parent Alphabet (NASDAQ:), and Tesla (NASDAQ:) also have market caps of over $1 trillion. Facebook's (NASDAQ:) meta-platforms peaked at $1 trillion on June 28, only to fall below $1 trillion the next day.
Small cap stocks were under pressure at the end of the month. The small cap index and the index fell 2.4% and 3.1% respectively for the month. But the declines came after the small cap index rose 6% at the beginning of the month. The midcap index rose a whopping 4% in November before falling back.
Signs of market stress? Barchart.com's daily calculation of net new 52-week highs and lows was negative for nine consecutive sessions. Tuesday's market activity produced 29 new highs and 673 new lows.
Investors took notice when indices became too expensive. The major benchmarks – Dow, S&P 500, NASDAQ and NASDAQ 100 – retreated when their relative strength indices moved above 70, which occurred on several days in early to mid-November. RSI measures price momentum.
Advanced Microdevices (NASDAQ:) +31.72%
NVIDIA) +27.81%
Xilinx (NASDAQ:) +26.92%
Dollar Tree (NASDAQ:) +24.19%
Bottom Five S&P 500 Stocks for November
Penn National Gaming (NASDAQ:) -28.45%
Gap (NYSE:) -27.15%
Activision Blizzard (NASDAQ:) -25.05%
Norwegian Cruise Line Holdings (NYSE:) -24.14%
DISH Network (NASDAQ:) -23.91%
