It was a mildly positive week for global markets, with the S&P/ASX 300 gaining 0.7%. International developed markets were down 0.4% in AUD terms as measured by the MSCI World ex-Australia index.

Domestically, gains were led by speculative areas of the market with small caps (S&P/ASX Small Ordinaries) surging 2.1%. Mid-caps (S&P/ASX Midcap 50) outperformed with a 1.3% return. These movements signal improvement in risk appetite locally. From a sector perspective, Healthcare and Information Technology were stand out performers. Globally stocks in Japan, Europe and other major markets also registered solid gains while Latin America provided the strongest returns. Argentinian stocks, though now little owned by foreign investors, jumped by 30% after the self-described anarcho-capitalist, Javier Milei, was elected as president.  

In fixed-income markets, yields changed little over the week resulting in mildly positive returns across the board.

However, this mildly positive week capped a particularly buoyant November with the S&P 500 and Nasdaq Composite advancing by 8.9% and 10.7% respectively. Growth stocks generally outperformed value stocks, with Information Technology, Consumer Discretionary providing the strongest returns while interest rate sensitive ‘value’ sectors like Real Estate and Financials also rallied.  You could call this a relief rally as it followed a fairly moribund October when interest rates were rising while recession fears also remained - pointing to the much-feared ‘stagflationary’ economic environment.

Last month decent inflation data around the world and some dovish commentary from certain Fed officials allowed long-term rate expectations to ease by about half a percent or so. Whether that also coincided with more optimism for the economy is hotly debated and observers seem to be polarised between those calling for a hard landing and goldilocks slowdown. There is also some conjecture that easing financial liquidity conditions may have helped as the Federal Reserve looks towards the year-end when banks often contribute to a tightening in liquidity (the Fed was famously caught out in December 2018 and they may be trying to avoid a similar situation). Regardless, it was a good environment for government bonds.  

Corporate bonds outperformed government bonds across both investment grade and high-yield sectors as credit spreads tightened, perhaps suggesting that recession fears were abating. The Bloomberg Barclays Global Aggregate Corporate index returned 4.4% compared to 2.8% for the Global Treasury index for the month. Overall, both equity markets and long-term rates are back to roughly where they were at the end of September.

Commodity prices were mixed in November, though the overall S&P GSCI Commodity index declined 3.7%. Oil prices dropped over 6% as OPEC prevaricated on supply cuts while industrial metals like copper and Iron Ore saw gains. Gold prices rose modestly despite dollar strength. Overall, this was another set of data points that did nothing to clear up the debate of this November rally being based on technical factors or economic optimism.  

In Australia, the inflation data was also somewhat encouraging although most observers are not putting too much store by the new monthly inflation data series. Overall, though economic sentiment in Australia picked up the stagflationary batten as the focus has moved to ongoing inflationary pressures, labour shortages and a cost of living crisis with house prices and rising mortgage rates very much centre stage. The RBA has been careful to acknowledge these concerns while emphasising that they are stuck between an economic hard place and monetary rock - high rates contribute to mortgage stress while price inflation also hurts the poorest in society the most.  Still, the Australian share market as measured by the S&P/ASX 300 was dragged up 5.1% with broad-based gains across most sectors. Standout performers included healthcare, information technology and real estate. Top individual contributors to index performance included CSL, Commonwealth Bank and BHP any virtue of their size.

As we approach the year-end we will be looking for more evidence pointing towards either a liquidity-driven Santa rally or improving fundamentals but the base case remains that we will see some sort of a downturn before things get much better.