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US Markets

November 2019 Review and Outlook

November 2019 Review and Outlook | The major U.S. large cap indices reached new all-time highs while small caps broke out from a nine month range to new 52-week highs.

Executive Summary:

  • The major U.S. large cap indices reached new all-time highs while small caps broke out from a nine month range to new 52-week highs.
  • Technology again led all sectors and is having its best year (+42%) since 2009.
  • Healthcare posted a 5% gain for the 2nd consecutive month. The Nasdaq Biotech Index spiked 11.4%, following a 7.7% gain in October. 
  • The Fed is considering a rule change allowing inflation to run above its 2% target.
  • Rates pulled back from recent highs but the 2YR and 10YR each gained 9bps, MoM.
  • The Trump administration is expected to impose a new round of tariffs by December 15th if a phase one trade deal with China is not signed.

They say all bull markets climb their own wall of worry, and this one is certainly no different. There is still no trade agreement between the U.S. and China, and just last week more uncertainty was injected into the equation when President Trump signed legislation supporting Hong Kong protesters. Barring another temporary reprieve, an additional round of tariffs is expected to go into effect in two weeks’ time if the two sides do not sign a phase one deal. Yet here we are with just one month to go in 2019, and this decade for that matter, and the S&P 500 is having its best annual performance, +25.3% YTD, since 2013.  

The stock market continued its surge in November and very few groups were left out in the cold. Small caps, micro caps, large caps, growth, value, you name it, stocks of nearly all stripes and sizes are propelling the major equity indices to new highs. Despite a third consecutive quarter of negative corporate earnings growth, the resilient U.S. consumer continues to spend and softening economic data may already be in the rearview mirror. 

Black Friday shoppers spent $7.4B online marking the largest Black Friday sales on record, and second only to last year’s $7.9B spent on Cyber Monday. Adobe Analytics expects this Cyber Monday to increase 19% YoY to a record $9.4B.  

The IHS manufacturing PMI advanced for the third consecutive month and the latest release made a seven month high, while the services PMI reached a four month high. New Home Sales posted their best two months in more than twelve years as single family home sales reached a 733,000 pace in October, following an upwardly revised 738,000 in September.     

Solid employment data and subdued inflation measures should keep the Fed on the sidelines for the foreseeable future following three rate cuts from the summer into the fall. In fact the FT is reporting the Fed is now considering introducing a rule that would let inflation run above its 2% target. Last week the PCE core deflator, widely regarded as the fed’s preferred inflation measure, came in at 1.6% YoY.      

November Performance

MID Nov. Review Chart 1

The major U.S. equity indices posted their best monthly performance since June led this time by the small and microcaps. The Russell Microcap Index and the Nasdaq Composite each gained +4.5%. Just behind were the small cap Russell 2000 and large cap Nasdaq 100 indices each with gains of 4%. The big standout was the Russell 2000 which in the final week of November made a “bullish breakout” above a clearly defined, nine-month resistance line to fresh 52-week highs. The canary in the coalmine foreshadowing this move were the new highs in breadth and momentum readings, which often lead price, made during the first week of November.

MID Nov. Review Chart 2

Like most months in 2019, technology led all sectors with a November gain of 5.2% and now stands +41.8% YTD for its best annual performance since 2009. Healthcare followed last month’s 5% gain with a return of 4.8%. Biotechs continue their torrid pace with the Nasdaq Biotech Index gaining 11.4% in November following a 7.7% return in October. Financials also gained 4.8% while breaking out to fresh 52-week highs. The S&P 500 Financials Index is now within 1% of its January 2018 highs, and more importantly within 3% of its Housing Bubble highs made in May 2007. The defensive REITs and Utilities sectors were the only groups to finish in the red, however each group is having its best annual performance since 2014. 

MID Nov. Review Chart 3

While both groups performed well in November, growth outperformed value for the ninth time in eleven months. The Russell 1000 Growth Index (RLG) gained 4.3% vs. 2.8% for the Russell 1000 Value Index (RLV). There was a lot of buzz in September when value outperformed growth by 343 bps which then led many to speculate this was the start of a new trend.  However, the technicals never supported this viewpoint as the ratio of the Growth Index over the Value index never made a convincing break down below the prior 2018 high, nor did it dip below the 40-week moving average (violet line). While the ratio has yet to get back above its August high, growth still has the upper hand. 

MID Nov. Review Chart 4

Rates, Commodities, & the Dollar

The UST 2YR and 10YR yields each gained 9bps. Accordingly, the widely followed 10YR – 2YR spread, 16bps, was unchanged for the month although down from 27bps reached on November 12th. In early December, the spread has widened back above 20bps likely due to reports the Fed is considering letting inflation go above its 2% target. The U.S. Dollar Index (DXY) gained 1% and now stands +1.7% YTD. Crude Oil (WTI) declined 5.1% in the final session of November to finish the month with a modest gain of 1.8%. After surging 57% from its December lows to April highs, crude has spent the better part of the ensuing seven months chopping around between $52 and $61. 

Looking Ahead

Stocks have been red hot and as such at any point in time could see a “healthy” correction. The just released ISM data was disappointing, and markets are not responding favorably to Trump’s latest tweet that he will reinstate tariffs on steel and aluminum from Argentina and Brazil. A phase one deal is unlikely to have much teeth to it, but anything that prevents additional tariffs is likely to be a “win win” as far as markets are concerned. Santa Claus seasonals are favorable this time of year, however 2018 proved an unwelcomed, Grinch-like performance is always a possibility. January tends to be a big swinging month, up or down, so that is something to watch out for one month out. In the here and now, the U.S. consumer looks poised for a record spend this holiday season as the Fed may be signaling it is willing to rev up the RPM’s on the economic engine.     

Nasdaq's Market Intelligence Desk (MID) Team includes:

Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen-based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen-based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq, Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).

Michael Sokoll, CFA is Associate Vice President on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information. 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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