Positive news boosts stocks.
November was a good month for stocks, especially domestic stocks. Large-cap US stocks led the pack, returning 3.63 percent (S&P 500). Small caps were up 3.06 percent (S&P 600). International stock returns were not as impressive. Developed-market stocks rose 1.13 percent, but emerging-market stocks fell by 0.14 percent (MSCI EAFE and Emerging Market indices). Interest rates crept up and so bonds fell slightly. The Bloomberg Barclays Aggregate Bond Index fell 0.05 percent. As for volatility, November was a quiet month with no big swings in US markets. The S&P 500 didn’t move by more than +/-1 percent on any day.
Why it happened.
There were three main factors pushing domestic markets: trade, earnings and economic news. The long-running uncertainty over a U.S./China trade deal continued, but most of the November news suggested an agreement was in the cards. November closed out the third-quarter earnings season (when companies report their financials for the previous quarter) and the news was good: Three-quarters of the companies in the S&P 500 beat their earnings forecasts (Remember, stocks react to new information, not to what’s already expected). Finally, there was positive economic news on job-creation, inflation and sales of new homes among other things. However, the data on consumer confidence and personal income wasn’t as good.
Overseas the news wasn’t so positive. The upheaval in Hong Kong continued, hurting its economy and stocks and pulling down returns on emerging markets. And, although there was some positive economic news from the eurozone, the fall in the value of the euro relative to the dollar (making euro-denominated assets worth less in dollars) weakened the return to U.S. investors.
What this means for you.
At Financial Engines, we build portfolios that are individually built for you. November saw stocks, which are historically riskier than bonds, perform well. If your portfolio has higher risk, because you are far from retirement or have told us you are comfortable with higher risk, your portfolio will probably have risen. If you have a lower-risk portfolio, you will likely not have seen as much growth. It is important to realize that regardless of how the markets behave, your investments should reflect your personal goals and tolerance for risk. Speak with your advisor to ensure that you are on the right path.