November General Markets Comments
“The Lifeboat Party” – Kid Creole and the Coconuts, 1983.
During tumultuous times, high grade Government bonds are often considered as the lifeboat for investors, who can park their money there, waiting for better days to arise, or simply because they expect more dovish monetary policies down the road, which would push yields down and, hence, prop up fixed-income prices.
November 2023 has clearly responded to this logic, with both arguments validated: after two horrendous months for equities, there was a need for safer havens on the one hand, and, on the other hand, slowing inflation and cooling economic statistics buoyed the idea that Central Banks (and especially the Fed) were done raising rates, and that cuts might come sooner than expected.
The strength of the rebound in November has been spectacular; the fixed-income lifeboat party has dragged all assets in its wake, from equities, to credit and Gold.
The MSCI World has gained 9.2%, the S&P 500 8.9%, the Stoxx 600 6.5%, the MSCI Emerging Markets 7.9%, and the Topix 5.4%. In the context of falling yields (-60 basis points for the US 10 year and -36 for the German Bund), Growth has, again, dominated with a 11.1% rise for the MSCI World Growth versus +7.1% for the MSCI World Value. On a year to date basis, the performance gap is immense (+30.2% versus +3.3%). It is noticeable that the “fear gauge”, in other words the VIX Index, has cratered by almost 29% in November, and is now down more than 40% for 2023.
As said, Gold glittered and gained 2.7%, quite a normal feat when yields fall, and the dollar receded versus all currencies.
“This party is in honour of the will to survive” says Kid in his 1983 hit; although there are chances that December remains quiet, we can wonder who’s gonna survive in 2024, to either an economic downturn, or a renewed rout of rising rates if the economy holds better than expected. Something will have to give.
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