Expectations of corporate-tax cuts propel U.S. stocks.

U.S. stocks performed strongly in November. Small- and mid-cap stocks surged in the second half of the month, reversing losses early in November. They closed up +3.52% and +3.68% respectively (S&P 600 and 400 indices). Large caps followed, closing up +3.07% (S&P 500 index) and finishing with positive returns for the 13th month in a row. International stocks also had a positive month, but their returns were more modest than those of U.S. stocks. Year to date, international stocks are still outperforming U.S. stocks.Developed-market and emerging-market stocks rose by +1.05% and +0.20% (MSCI EAFE and Emerging Markets indices) respectively. Interest rates ended November up for the month. This led bonds to close down, with the Bloomberg Barclays Aggregate index returning -0.13%.

Overall, it was yet another period of low volatility in stock markets, with the S&P 500 not moving more than +/-1% on any day in November. Markets that tend to be more volatile were, true to form, more volatile in November. Small-cap U.S. stocks had four days of +/- 1% moves, and emerging-market stocks had three.

What happened.

As the likelihood of a cut in corporate taxes increased in the second half of November, U.S. stocks surged. The two big bumps were on Nov. 16, when the House of Representatives passed their tax bill, and on Nov. 28, when the Senate Budget Committee voted to advance their bill. Smaller companies tend to be more affected by corporate taxes, and small caps had the strongest returns on both days. Continued positive economic news provided the backdrop to corporate-tax-cut expectations.

Unemployment remained low and GDP growth for the third quarter was revised upward. A slight increase in inflation nudged up interest rates at the end of November. This resulted in depressed bond prices. Overseas, European and developed-market Asia economic news was positive. Late in the month, concerns about China’s growth hit emerging-market stocks.


What this means for you.

We build portfolios that reflect your personal situation and preferences, and this November rewarded higher risk in portfolios with higher returns. If you’re further from retirement, we build your portfolio with higher risk. That’s because you’re better able to weather the inevitable ups and downs that come with long-term investing. If you’re closer to retirement, your portfolio’s risk will tend to be lower, and so your returns this month will generally have been lower, too. This month’s sidebar looks at how to think about potential market dips and the importance of adjusting your portfolio’s risk to a level that’s comfortable for you. Please contact one of our advisors if you’d like to talk about your specific situation.


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