We hope you had a wonderful Thanksgiving holiday filled with family, food and fun! As we head into the final month of the year, the markets are trying to advance and provide us with a much needed “Santa” rally, which is the typical end of the year run up in stock prices.
November was another volatile month. After the October swoon, which took the S&P500 into correction territory (10% decline from the most recent peak), the market rebounded early in November, but succumbed to additional selling pressure — pushing the index back down to the October lows and once again erasing the gains for the year. The final week of November we saw the S&P move higher, attempting to close out the month with modest gains, and above the 200 day moving average.
Jerome Powell, Chairman of the Federal Reserve, delivered a speech on November 28th that helped sooth investors’ concerns about raising rates too much too fast. His comments, particularly the statement that he believed rates were closer to “normalization” than previously thought, excited the market with the prospects that the Fed may not raise rates next year as much as what had been expected. Reducing the one key concern the market has about future growth (see our October Market Pulse blog), helped the market find a “floor” and could very well spark a rally to the end of the year.
From a technical standpoint (see chart below), the market is still in no man’s land, stuck almost in the middle of the most recent market lows (2,641 on 10/29 and 2,632 on 11/23) and the most recent market tops (2,809 on 10/17 and 2,813 on 11/7). We are encouraged that the October lows were tested in November, and were not breached. We are also observing a firming of the 200 day moving average (purple line), and hope this S&P can stay above this level of market support once again. Should we see the market breach 2,813 to the upside, this would further our excitement that the market may have adequately priced in some of the future concerns, shaken out the weak hands, and set us up to move toward a new all-time high.
This pricing action we’ve witnessed over the past two months exemplifies the uncertainty of the market and the heightened volatility surrounding this uncertainty. We have been proactively reducing risk in your portfolios by shaving off the gains for the year and moving them to the sidelines to cash, perhaps temporarily. In addition, we’ve been layering in a low volatility position (USMV or BIMVX) into your core US stock position as an additional way to temper the volatility in your portfolio. These low volatility funds are designed to own those US stocks that have experienced lower standard deviation than the broad market over the past 12 months. This position allows us to maintain stock exposure in the event the market screams higher from here, but more importantly it should help us reduce declines should the market retreat in the future.
We are very much aware that the market is attempting to sort out ongoing future uncertainty and are both hopeful that the market can continue its advance yet cautious as we observe how the future unfolds. Have a wonderful holiday season and a Happy New Year. Feel free to contact us directly at 330.467.3111 should you wish to talk further.