For the month of November, the NASDAQ finished up 10.7% for the month. The S&P 500 was up 8.7% for the month while the Dow was up 8.8% for the month. The market reacted strongly to the Fed’s comments earlier in the month stating that they were on hold for now.
I decided to summarize the most frequent questions I’m being asked by investors and provide my short answer:
Will rates come back down sooner than expected? The consensus is that the Fed will be on pause longer, but we could see rates come down in the second half of the year. With the election in November and the Fed wanting to remain politically neutral, I’d bet they don’t change anything between September and November.
With heightened geopolitical risk and an election cycle at home, is volatility likely to be higher? Yes, the world is more dangerous, and elections do create some volatility. Diversification across industries and geographic lines may prove to be best.
When will higher rates start hurting companies? Not for a long time. Large companies took advantage of lower rates for a long time to restructure their debt, and there is less than 7% corporate due in any given year over the next 30 years.
Are other equity markets’ returns as concentrated as those in the U.S.? No. While almost 100% of the return of the S&P 500 is attributed to just 7 stocks, the top 10 companies in the developed markets index are up 13.7% while the remaining stocks are up 6.7%.
Is it time to invest internationally? It appears that we may be in the early stages of international outperformance. While international markets have underperformed the U.S. over the last 15 years, the path ahead is looking brighter. In addition to discounted valuations and currencies, the fundamental outlook is improving driven by higher nominal growth, higher interest rates benefiting value sectors for the first time in a while, and increased focus on returning capital to shareholders.
Does technical analysis matter? Yes, if you trade frequently. Not so much if you are a long-term investor.
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