November 2019 Market Commentary

November has been a good month for the most part for the S&P 5001.  For the first part of the month, there were several factors backing the move upwards (which we believe started in the middle of October).  However, since Nov 8th, those same factors appear to be deteriorating.  Yet, interestingly, the market indexes continue to slowly, very slowly, creep upwards. 
 
But, to me, something here doesn’t add up.  In the past couple of weeks, as the market has been ever-so-slowly creeping upwards, the majority of stocks traded having been going lower.  Each day, roughly 60% of all stocks have been going down while the “market” indexes have been slowing rising (you can follow this daily at barchart.com).  This week hasn’t tracked the pattern exactly, but even today (Tuesday), it is only showing 56% positive.  Strong markets tend to be in the 70-80%+ range.  So, while we are in positive territory, it doesn’t appear to be sustainable in the short term.
 
It appears to us that the VIX (Volatility Index – sometimes referred to as the “fear index”) is unusually low right now.  In the past year, a reading of 12 has typically been the point where investor fear appears to be at its lowest.  If you look at each blue vertical line, you can see what happens shortly after these low readings are hit.  In contrast, when the VIX (top chart) spikes, then the S&P 500 index tends to drop.  Right now, there is also the possibility that seasonal factors still exist (we are in the “best 6 months” period referenced in previous articles).  So, while it should be a time for caution, it’s also not a time to be completely out of the market.

One Year chart of the VIX (Volatility Index) with the S&P 500 index (bottom half)2

There has also been an interesting asset rotation from Large Cap Growth to Large Cap Value areas over the past 3 months, but it appears that it is rotating back to the Growth side (largely back into Technology).  We’ve remained focused on the Growth side during this period, so it has felt more lag-y than I would like, but the shift back is expected to work well for us.
 
The Bond market has been oddly strong this year, but with the Federal Reserve going back to lowering rates, this tends to make sense to us.  Since our November 8th call to reduce risk, the 7 – 10yr Treasury bonds have actually, just slightly, outperformed the overall stock market.  Normally, that is considered a safe space for money when there is too much risk in the market – where money flows during high volatility.  We don’t often see them move with this much similarity.
 
Earlier this month, I heard Danielle DiMartino Booth (former advisor to the Dallas Federal Reserve during the 2008 financial crisis) speak at the NAAIM Conference.  The biggest take-away I got is that she believes what the Federal Reserve is currently doing regarding monetary policy is unchartered territory and appears to be the most pro-active action they have taken since the Fed was created.  It is certainly an interesting world we live in today. 
 
Wishing everyone a great Thanksgiving with family, friends or whomever you share the holiday with.

 

 


1 The Standard and Poor’s 500 is an unmanaged, capitalization-weighted benchmark that tracks broad-based changes in the U.S. stock market. This index of 500 common stocks is comprised of 400 industrial, 20 transportation, 40 utility, and 40 financial companies representing major U.S. industry sectors. The index is calculated on a total return basis with dividends reinvested and is not available for direct investment.
 
2 Charts are for informational purposes only and are not intended to be a projection or prediction of current or future performance of any specific product. All financial products have an element of risk and may experience loss. Past performance is not indicative of future results.