What a November!

After three consecutive ugly months, equities moved up nicely in November.  Perhaps even more exciting, the rally was widespread and not simply consisting of high-returning mega cap growth stocks.  Virtually all areas within equities showed nice returns for the month.  Even bond returns were up significantly, as interest rates began to decline.

Two-Year Round Trip?

While it is true November was a fantastic month for stocks, it is also true that the market is currently trading in the same range as it did two years ago.  Think of all that has happened over the last two years, yet the S&P 500 and Dow Jones Industrial Average are trading around the same level.  Interesting.  A reason to have a long-term investment outlook. 

At this point, two years ago, S&P 500 corporate earnings were predicted to be $223 for 2022.  The street consensus was very close.  The actual number was $221.59.

2024 Earnings Outlook

Today, Street consensus 2024 earnings are predicted to be $246.30, per FactSet.  This brings the current P/E multiple to 18.7 times.  This is right in line with the five-year average forward P/E of 18.8 and above the ten-year average of 17.6.

Investors Seem to Believe

Sometimes it is hard to pinpoint cause and effect in the markets – especially over short periods of time.  With that said, it appears investors believe the Fed has finished its hiking cycle and will soon begin lowering rates.  The debate now seems to center around when this might occur and by what degree.  Although the Fed maintains rate increases are still possible.

Best Performing Months of the Year

Historically, November, December, and January have been the top performing consecutive months of the year.  Time will tell if this holds this season.  Economic and market data continue to be monitored for any glimpse into the future.  We believe asset allocation and diversification remain prudent approaches – especially with the many geopolitical uncertainties.

For those interested in history and greater details:

Excerpts and Takeaways from our December 9, 2021 Market Update:

• 2022 corporate earnings to be approximately $223. 
• Covid and its variants – especially Omicron are quite concerning.
• M2 Money Supply is up over 30% from its February 2020 pre-pandemic levels. 
• Employment data is beginning to improve. 
• CPI is approximately 7%, the Fed is in the early stages of tapering – or removing some stimulus from the economy. 
• Due to inflation, possible rate hikes are likely to begin in the Spring. 
• On the geopolitical front, Russia/Ukraine, China/Taiwan, and Iran are all concerning. 
• The US Debt Ceiling.  The “possibility of a default – even if the unthinkable is a remote possibility.”

Today:

• 2024 earnings are predicted to be $246.30, per FactSet.  
• This brings the current P/E multiple to 18.7 times.  This is right in line with the five-year average forward P/E of 18.8 and above the ten-year average of 17.6.
• M2 Money Supply is now shrinking.
• Employment remains robust.
• CPI stands at 3.2%.
• The Fed is likely nearing the beginning of rate cuts, next year.
• Geopolitical concerns remain elevated.
• US Debt and potential default concerns remain.