November saw the markets cool off as fixed income and foreign stock had down months. Domestic stock markets had positive, but weak performance from large cap stocks, while small and mid cap stocks continued to perform well. European debt concerns dominated the news and weighed heavily on fixed income and foreign stock. Investors began to pull back for the first time in years from the bond market after its tremendous decade long run. The Fed’s stimulus move was met with mixed reviews by foreign leaders, but the markets responded strongly. Several economic readings continued to lend investors confidence in the recovery with positive job news, retail sales and business and manufacturing growth. GM roared back into the markets as one of the largest ever IPOs was broadly snapped up by investors around the globe.
-Hiring increased in October with a surprising 151,000 jobs created adding to hopes that the recovery might finally be accelerating. Most of the job increases came from service businesses and the private sector had its largest gain since April with an increase in 159,000 jobs. However, the jobless rate remained steady at 9.6% for the third month in a row as more workers were no longer actively seeking employment. Increases in hiring have many optimistic the economy may be moving faster than the 2% analysts are projecting for the 4th quarter.
-Business readings continued to tick up over the month breeding optimism for the economy. The manufacturing index in October reached its highest level since May, factory output continued its upward trajectory, car maker’s sales rose 13.4% in October, and wholesalers raised their inventories in September 1.5%.
-Retail performance continues to improve as retail sales grew 1.2% in October to reach their highest level since August 2008. Kicking off the holiday shopping season the Black Friday shopping weekend sales numbers were better than last year with consumer traffic and store and website sales up. The upswing in performance carried through “Cyber Monday” with retailer’s sales jumping approximately 20% over last year. The increased consumer spending is underscored by consumer confidence hitting its highest level in 5 months.
-In an attempt to rectify a “disappointingly slow” economic recovery the Fed announced its plan to purchase $600 billion of US Government bonds over 8 months to lower interest rates and promote borrowing to aid economic growth. In addition, proceeds from existing securities holdings coming due will be reinvested, which accounts for another approximately $300 billion. According to fed estimates the bond buying move would have the equivalent affect of cutting interest rates ¾ of a percent. The Fed’s plan has come under fire globally and from the GOP criticizing the move as undermining the dollar and potentially engendering large scale inflation.
-The CPI rose .2% in October based mostly on energy costs. Without volatile food and energy prices the index was unchanged for the third straight month. Over the past year the rate has been 0.6% the lowest level since the data was first tracked in 1957. The flat lining of inflation has lent support to the Fed’s stimulus program to drive inflation towards its informal target.
-GM triumphantly reemerged from its long nightmare in November as it reported a $2 billion profit in the third quarter and had the second largest IPO ever. Over $18.1 billion shares sold marking an extraordinary two year turnaround from pleading for a bailout to posting repeated positives earnings. The company sold 478 million shares at $33 a piece, a price much higher than anticipated with an additional 72 million shares sold through an overallotment due to the overwhelming demand. The US Gov cut its ownership share in GM from approximately 61% to 27% through the IPO.
-Government authorities are completing a three year investigation into alleged insider trading that could involve consultants, investment bankers, hedge fund and mutual fund traders and analysts across the U.S. Offices of three large hedge funds were raided by Gov agents and they have broadened their inquiry looking for trading and other information from hedge fund giants SAC Capital Advisors and Citadel LLC in addition to mutual fund companies Janus Capital Group Inc. and Wellington Management Co.
-Initially reacting tepidly to the Fed bond buying announcement, markets, after digesting the information, rocketed to pre-crisis levels. However, the surge was short lived as investor’s fears of European sovereign debt began creeping back into the spotlight. After initially resisting pressure from the European Central Bank (ECB) and European leaders to take a bailout, Ireland finally succumbed to the realities facing the financially troubled nation and came to terms on a $90 billion bailout. The EU was worried that troubles in Ireland could lead to a devaluation of the Euro currency and was seeking to avoid problems spreading to other weak nations including Portugal and Spain. The ECB also developed new rules for future bailouts, but the plans did little to quell investor fears and borrowing costs for Spain and Italy reached record highs.
-Investor’s continued wariness of European debt over the second half of the month weighed on foreign stocks, but domestic indices were mostly up. The Dow ended the month at its lowest level for the month finishing down -0.6%, while the S&P 500 was flat returning 0.0%. Broader indices like the Russell 3000 finished in positive territory. Growth continues to outperform value and small cap stocks outperformed large cap stocks yet again. International markets saw the European issues affect performance more substantially with developed and emerging markets returning -4.8% and -2.6%, respectively.
-Bonds saw poor performance in November over European debt woes and investors pulling money from bond funds for the first time in two years. Performance was down across all terms and sectors for the month with longer term, municipals and international bonds fairing the worst with performance between -1.4% and -2.0%. Short term and high quality fared better but were still down -.1% to -.2% for the month. Yields continued to rise over the month with the yield on the 10 year Treasury note up to 2.80%.
Index Performance – November
US Large Cap Stock (S&P 500) +0.01%
International Stock (FTSE AW ex US) -3.92%
US Broad Bonds (BarCap Aggregate)-0.57%
US Government Bond (Barclay’s Govt)-0.67%
Cash (ML 3Month T-Bill) +0.01%
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