The sharp selloff in the global equity markets on the first day of December will most likely shift public attention away from the events of November almost immediately. However, we would like to briefly recap the month of November as a reminder that volatility works in both directions and that changes in sentiment have been occurring very rapidly in the current market environment.
The month of November had no shortage of significant news. Barack Obama was elected President of the United States, American automobile companies teetered on the brink of bankruptcy, Citigroup was rescued by the U.S. government, and Mumbai, India suffered a shocking terrorist attack. These events and others contributed to the continuation of extreme volatility in the global stock markets. While the numbers were not as sobering as those of October, the downward trend did continue:
INDEX November YTD
Commodities -7.2% -33.7%
Emerging Markets -8.9 -54.1
High Yield -9.6 -35.8
International Large Cap -5.2 -46.4
International Small Cap -4.1 -51.1
Real Estate -22.6 -48.2
U.S. Large Cap (S&P 500) -7.2 -37.6
U.S. Large Value -7.2 -37.7
U.S. Small Cap -11.8 -37.3
The full month numbers, however, do not tell the whole story of November. The first three weeks of the month witnessed a relentless selloff in the global markets, while the final six trading days of the month saw a very impressive rebound:
INDEX* Nov. 1st-20th Nov. 21st-30th
Emerging Markets -28.2% +25.7%
International Large Cap -19.8 +16.8
Real Estate -40.5 +31.9
U.S. Large Cap (S&P 500) -22.0 +18.6
*Estimates based on Exchange Traded Fund Returns
Did something change on November 21st? Did the news get dramatically better? Did the economy turn around? Did real estate prices rebound? Are retailers happy about prospects for the holiday shopping season? Obviously, the answer to all of these questions is a resounding “no”. Yet, various equity asset classes were able to rebound as much as 32% in just a few days.
While the bounce seems surprising, the reason behind it is a simple one; the equity markets are factoring-in a great deal of uncertainty and bad economic news already. The market does not necessarily need to hear great news in order to move upwards; it just needs some clarity and some news that is not as bad as feared. The final days of November illustrate that the forward-looking nature of the market allow it to move higher long before the economy does.
On an administrative note, we have begun implementing our year-end tax management strategies in taxable accounts. Tax-related trading will continue until the end of the year, so if you have any questions or specific tax needs, please contact us. Also, clients who have Required Minimum Distributions (RMDs) from IRA accounts should have received documentation from us several weeks ago. If you have not returned your RMD requests to us or if you have questions about your RMD, please contact us as soon as possible.
We hope everyone enjoyed the Thanksgiving weekend and we appreciate your continued confidence in Heritage.
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