Five Turkey-Time Takes on the Market

By: Edward Jones
DEWITT, Mich. - Nov. 28, 2023 - PRLog -- This past week brought our holiday opportunity to focus on the things we're thankful for. With Thanksgiving 2022  coming as stocks were down 16% on the year, 2023 has brought a market more worthy of investors' thanks. Thanksgiving also marks a turn into the homestretch for the year. Therefore, we've dished up a few holiday perspectives on market performance that may help set the table for the year ahead:

1. Post-turkey track record:
  • The stock market has historically done well after Thanksgiving. Over the last 30 years, the average return in December has been roughly 1%, with the market logging a post-holiday gain roughly three-quarters of the time. The best was December 2010 with a rally of 6.5%, followed by 2003, 1999 and 1998, which saw post-Thanksgiving gains of more than 5%.1
2. A recipe to sustain the stock-market rally:
  • Ongoing moderation in inflation: Perhaps one of the key ingredients to the rally thus far has been a consistent trend of lower inflation. Headline consumer price index (CPI) inflation for October came down to 3.2% year-over-year, while core inflation moderated to 4.0%. At the end of the month, investors will get the October reading of personal consumption expenditures (PCE) and core PCE inflation, the Fed's preferred inflation measures.
3. Underperforming small-caps: A Thanksgiving comeback story?
  • 2023 has been a notable year so far for small-cap stocks, but for the wrong reasons. The Russell 2000, a proxy for U.S. small-caps, is on pace to trail the S&P 500 by about 15%, the widest margin in a calendar year since 19982. Worries about an economic slowdown and high interest rates on the back of aggressive Fed tightening have been the main culprits for the underperformance.
4. Weight check: S&P 500 overindulged on largest sectors?
  • The narrow leadership of the S&P 500 this year can raise questions about the value of diversification. The S&P 500 index has risen by over 15% year-to-date, while the S&P 500 equal-weighted index has seen a more modest 4% rise, highlighting that much of this year's gain has been driven by the indexes' largest companies.3 Today, the top three sectors of the S&P 500 comprise over 50% of the index, and the 10 largest stocks account for over 30%.4
5. Baking with bonds has gotten sweeter

Bond-market performance has left a sour taste in the mouths of investors, an unwelcomed experience at any Thanksgiving table. Interest rates moved sharply higher this year, continuing a three-year upward trend in yields.

Sources: 1. Bloomberg, performance of the S&P 500 index. 2. Bloomberg, Edward Jones 3.  Morningstar Direct, Edward Jones. 4, FactSet

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