10 Reversals That Challenge The Narrative

DEWITT, Mich. - Dec. 6, 2022 - PRLog -- The recovery in financial markets has gained steam as we navigate the final stretch of the year. Global equities recorded their first back-to-back monthly gains in over a year, and investment-grade bonds posted their biggest monthly gain since 2008, a reminder of the importance of maintaining a disciplined investment approach in times of uncertainty¹. Beyond providing portfolios with some relief, November was a month that included some major reversals. We draw attention to the recent trends that defy this year's narrative and provide our take on Friday's strong employment data that dented some of last week's excitement.

A November to remember

This year's challenging backdrop for investors has been shaped by multiple headwinds hitting the economy and markets. Four-decade-high inflation, surging borrowing costs, lockdowns in China, a war in Ukraine, and bearish investor sentiment. While these challenges have persisted throughout the year, here are 10 recent highlights and reversals that might have gone unnoticed.

1. Following last month's rally, the Dow is now up more than 20% from its October low and down only about 5% from its all-time high¹. Of course, that doesn't reflect the broader weakness in equities, which is better showcased by the Nasdaq's 27% decline¹.
2. Cyclical sectors (excluding energy) outperformed defensives, and the average stock in the S&P 500 did better than the index, which was weighed down by the lagging mega-cap stocks¹.
3. Equity volatility plunged last month, pushing the VIX – the so-called fear index – back to its historical average (down to 20 from the March peak of 36)¹.
4. U.S. taxable investment-grade bonds logged their best monthly return since 2008¹.
5. Municipal bonds posted their best monthly return since 19861.
6. Bucking this year's trend, longer-duration bonds outperformed shorter-duration bonds¹.
7. U.S. gasoline fell to its lowest price since before Russia's invasion of Ukraine, with the daily national average at $3.47 from a peak of $5.00 in June¹.
8. The U.S. dollar had its worst month since 2010, depreciating 5% against a basket of other major currencies¹.
9. Chinese equities led global markets higher on reopening hopes. Hong Kong's main index rose 27% in November, the most since 1998¹.
10. International developed large-cap equities closed their performance gap with U.S. stocks, now both down about 15% for the year¹.

What do these reversals signal, and are they sustainable?

• The recent strength in equities, rebound in bonds, and softening of the U.S. dollar are all directionally aligned with our expectations, but we doubt these trends will continue uninterrupted next year.

Source: 1. Bloomberg, Edward Jones