Stocks and bonds advanced for a second consecutive month in November, based on increased hopes for an economic soft landing and a Fed pivot back toward more accommodative policy. This was despite a fourth 0.75% rate hike in less than five months. On the last day of the month, Fed Chairman Jerome Powell suggested rate hikes will continue but transition to smaller increments.
International stocks significantly outperformed and are now modestly ahead of U.S. stocks for the year. The dollar declined and continues to be inversely correlated with stock prices overall. While we are still technically in a bear market, the rebound in the last two months leaves the global stock market down less than 15% for the year as of the end of November.
Collapse of FTX
Early in the month, leading crypto exchange FTX imploded as it was revealed that the relationship between FTX and trading firm Alameda Research was closer than many understood. Inspection into the financials showed much of FTX’s assets were in fact its own native token FTT. A “run on the bank” ensued. The drama created large aftershocks in the crypto world but had little impact on other major asset classes or the core global financial system. While these events do not mean the bear market in stocks or bonds is over, we think a cleansing of some of the froth and excess in crypto was likely necessary before a new general bull market can ensue. In that regard, perhaps these ongoing events will prove to be a bullish milestone for stocks.
Impact of Midterms
Democrats fared better than expected in midterm elections. Republicans regained control of the House but failed to take the Senate. Both houses of congress are close to balanced. This type of divided government can be a constructive backdrop for stocks because it leads to less legislation and therefore less change. We don’t believe these midterm results will have much impact on markets in the near term, but it is mildly bullish to have the looming uncertainty they posed resolved.