November was full of market volatility led by global interest rates. The Fed, a new Covid variant, inflation pressure, and economic data all contributed to a manic start to the holiday season.
The month of November started with positive tones, yet as November closed, a “risk-off” environment emerged giving major markets some of the biggest moves they have seen since 2020.
- The benchmark U.S. 10-year Treasury began the month at a yield of 1.555%, hit an intra-day high of 1.691% the day before Thanksgiving, and ended the month much lower at 1.447%.
- Equity markets fell as well with the S&P 500 Index total return down -0.70% for the month. The DJIA was hurt the most, falling -3.5%, and only the NASDAQ, helped by lower rates, ended slightly higher +0.34%.
The FOMC and other Central Banks gave markets a lot of news to digest in a relatively short period.
- 11/3/21: U.S. Fed Chairman Powell delivered the expected news that the FOMC would begin to taper their bond-buying program by $15 billion beginning in November. His comments were measured and a “laddered taper” was appropriate. The US yield curve flattened and short-term rates rose as markets began to price in expectations for future rate hikes.
- 11/4/21: The Bank of England in a decidedly dovish move kept rates and their posture unchanged. This sent global rates lower and Treasuries followed.
- 11/9/21: Treasury yields fell again as news reports that President Biden was holding a meeting with Fed Governor Lael Brainard as a potential “party” pick to replace Chairman Powell. The market viewed this as a more dovish solution and a change of guard at a crucial time.
- 11/19/21: New Fed Governor Waller stated the rapid improvement in the labor market and the deteriorating inflation data pushed him to favor a faster pace of tapering and a more rapid removal of accommodation in 2022.
- 11/22/21: President Biden chose to keep Chairman Powell as Fed Chairman and made Lael Brainard the Fed Vice-Chair. Bond prices fell and equity markets rose.
- 11/30/21: As investors grapple with the new Covid variant, Chairman Powell pivoted to a much more hawkish stance suggesting that inflation is broader than previously expected. He stated that the term “transitory” does not make sense to continue to use related to inflationary pressures. He explained that the Fed taper could accelerate in future months which would end bond purchases sooner than expected.
In early November, Covid news seemed to be getting better. Markets saw some positive reactions to pharma giants like Merck and Pfizer suggested an antiviral pill could be coming to fight the virus. However, on 11/19/21 new lockdowns in countries such as Austria and Germany drove risk markets lower. The biggest negative catalyst seemed to hit markets during Thanksgiving as the new Omicron variant was spreading quickly after being discovered in South Africa. Global markets saw “2020-like” volatility as news came out. Markets fell as pharmaceutical companies suggested that vaccines may not assist with this virus strain and then rallied as cases were reported to be mild. December will be focused on additional detail around the Omicron variant. Countries acted quickly to close down flights from various countries which raised some economic growth concerns.
Economic data remains quite strong in the U.S. Manufacturing, service sector, and retail sales data were all stronger during the month. In addition, earnings reports (ex: Walmart and Home Depot) were solid despite bottlenecks and supply issues. Employment data during November was exceptionally robust, and probably one of the reasons the Fed was comfortable with changing some of their language. On 11/5/21, the nonfarm payroll data reported was 531,000 versus expectations of 450,000. Prior months were also revised higher and the unemployment rate fell to 4.6%. On 11/19/21, the weekly jobless rate fell to the lowest level since 1969, 199k.
Despite solid economic reports, inflation seems even stronger. Many economists think the FOMC may be behind the curve, and markets saw big swings in data reports. On 11/10/21, the monthly CPI data showed the strongest release since 1990 which caused the bond market to fall sharply. Unit labor costs for Q3 soared to 8.3% from 1.1% in the second quarter. Prices paid indices and inflation expectations remain high.
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