Originally published at: Monthly market roundup – November 2023 – InvestEngine Insights
Welcome to the latest edition of our monthly market roundups. This time we’re looking at the key topics from November, an excellent month for equities. We’ll also take a look at some of last month’s more unusual market stories.
Inflation fell in November, with the headline figure coming in at 4.6% over the last 12 months, down from 6.7% the previous month.
The meaningful drop in headline inflation was influenced partly by Ofgem, the energy regulator, implementing a reduced price cap, mirroring the decrease in wholesale gas prices. Additionally, a deceleration in food price inflation pulled down the overall headline figure.
The core CPI rate, excluding energy and food, climbed by 5.7% over the 12 months ending in October, marking a decrease from 6.1% in September. The rate of services inflation, a crucial metric closely monitored by the Bank of England to assess domestic pricing pressures, also saw a more significant slowdown than anticipated, dropping from 6.9% to 6.6%.
Inflation has also been falling in the US, decreasing from 3.7% to 3.2% in the 12 months to October, prompting Treasury yields to fall sharply and Wall Street stocks to climb.
Interest rates unchanged
As noted in our last roundup (released just after the most recent Bank of England meeting on the 2nd November), the central bank held rates at 5.25% in November.
The Bank of England governor, Andrew Bailey, noted that it was too early to be thinking about rate cuts, and said rates will need to stay high for an “extended” period of time. The question now is how long a period the word “extended” implies.
The bank noted that recent inflation deceleration can be attributed, in large part, to reduced contributions from the energy component. However, it was also acknowledged that significant upside inflation risks may still arise from the conflict in the Middle East.
In the US, the Federal Reserve also elected to keep rates on hold, with guidance that the rise in long-duration treasury yields had reduced the need to tighten rates much further.
Equity markets storm ahead
November saw all major equity indices finish higher for the month, on optimism that the rate hiking cycle may be over, combined with continued strong corporate earnings.
The UK market rose 2.3%, buoyed by the Bank of England’s decision to keep rates on hold at the start of the month.
Similarly, the US market gained 5.1% in sterling terms (9.1% in USD terms), driven by the Fed also keeping rates on hold. The ‘Magnificent 7’ technology stocks led the rally, further widening the gap between their performance and the rest of the S&P 500 index.
The chart below plots the performance of these 7 stocks (Amazon, Microsoft, Apple, Tesla, NVIDIA, Meta, and Google), against all the other 493 stocks in the S&P 500. A portfolio of the Magnificent 7 has gained almost 75% this year, but the rest of the S&P 500 is flat, showing just how much the market has been driven by the 7 largest stocks:
Emerging markets rose by 4.0% (8.0% in USD terms), whose returns were, while positive, hampered by the weaker dollar.
The European market gained the most of all major indices in November, rising 7.0% on the back of lower interest rate hopes, but without the headwind of a weaker dollar.
Bond yields fall
UK bond yields fell over the month (meaning bond prices rose) as the market began to doubt the “higher for longer” interest rate narrative, now seeing a clearer path to lower rates.
The 2-year UK gilt finished the month at 4.6%, down from 4.8% last month, and the 10-year finished the month at 4.2%, down from 4.5% last month:
For October, Sterling strengthened against the Euro by 0.9%, finishing the month at €1.16. Sterling was particularly strong against the US dollar during November, with the dollar falling as a result of the prospect of falling future interest rates. Against the US dollar sterling rose by 3.8%, rising from $1.22 to finish the month at $1.26.
Off the beaten track
Fat finger error causes a day of negative energy prices for Finnish consumers
A Finnish power trader mistakenly offered to sell the equivalent of at least half the country’s entire consumption at an hourly auction.The faulty trades led to an average price of minus €203 per megawatt-hour, compared with an average in the Nordic region of €35.28. The result was many Finnish citizens making a profit from continuously running their saunas, and generally wasting as much energy as possible.
The $250,000 Kit Kat heist
The story of how to steal a quarter of a million in rare Kit Kats.
Volunteers needed for Musk’s brain implants
Elon Musk’s company, Neuralink, is seeking a volunteer for its first clinical trial. It’s looking for someone willing to have a chunk of their skull removed by a surgeon, so a large robot can insert a tiny computer into their brain which will read and analyse their brain activity, relaying that information wirelessly to a nearby laptop or tablet.
Bottle of whisky sells for £2.1m
A bottle of The Macallan 1926 featuring a rare label has set a new record for the most expensive bottle of any spirit or wine sold at auction.
Your next Airbnb host could be a private equity firm
Private-equity giant TPG has started buying homes in Florida, where it’s renting them out as alternatives to hotels and short-term rentals on websites like Airbnb. TPG are betting that “bleisure” travellers (corporate travellers who extend their stays by tacking on a day or more of holiday, combining business and leisure trips), as well as hybrid workers, and people travelling with families will want more room, a kitchen and greater privacy, making a spacious home preferable to a hotel suite.
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