Global Equity Markets Review | November 2021
Unlike October’s strong finish, November ended on a much different note with two of the weakest days of the year, pushing the major U.S. equity benchmarks into negative territory for the month.
In fact, the benchmarks were drifting lower since mid-month for the S&P 500 and even earlier for the S&P Mid and Small Cap Indexes. A confluence of events dented investor confidence with concern over inflation joined by worries over a new COVID variant as well as the Federal Reserve’s announcement of less accommodative monetary policy. For the month, the S&P 500 Index generated a negative total return of -0.69% while the S&P 400 Mid Cap and the S&P 600 Small Cap indexes down -2.94% and -2.29%, respectively. From a sector perspective, few positive returns were recorded with large and small cap technology, along with large cap consumer discretionary, firmly in the green. Energy and Financial sectors were among the weakest, although to be fair their year-to-date returns remain near the top of the major economic sectors. The disparity in sector leaders and laggards in November was particularly challenging for the large cap value style versus growth; however, mid and small cap value benchmarks both outperformed their growth peer benchmarks.
Concerns over the Omicron variant will not be dismissed lightly but initial observations are encouraging with respect to the severity of the symptoms and successful vaccines for previous strains already developed and deployed. Nevertheless, it is a grim reminder the end of the pandemic has no specific date when victory can be declared. As we move closer to the two-year mark when COVID first appeared, the economy is much closer to normal than the depths of 2020. There remains uncertainty over what the post pandemic life will look like but it is clear the economy needs less of the unprecedented amount of fiscal and monetary stimulus in place since early last year. The latter point was made by Jay Powell, the Fed Chair, in recent Congressional testimony where he outlined the timeline of removing the punch bowl of rock bottom interest rates and large purchases of mortgage and Treasury securities. Comparisons to year ago measures will become increasingly difficult as the low bar of pandemic related fundamentals give way to the early days of the economic reopening. The graph below illustrates the point using forward estimated earnings per share for the S&P 500. Estimated earnings growth versus year ago levels remain exceptionally strong but as you move toward more recent periods annualized growth is clearly slowing as the comparisons become more difficult. This trend will continue as companies report 4th quarter results with 2022 comparisons against a much higher bar than what we have seen this year.
Global equity markets also witnessed declines as the same concerns mentioned above buffeted overseas bourses. The S&P Global ex-US Index had a negative total return of -4.58% with developed markets ex-US down -4.94% and emerging markets down -3.53%. By geography, Asia-Pacific markets performed relatively better than European area markets in both developed and emerging benchmarks. One area of interest is China which had been over intense pressure earlier this year has now outperformed most European markets over the past three months. The dollar has rebounded during most of 2021 and added another 2.0% in November which helps dampen local currency returns for a U.S. investor. It is also worth noting the leadership of large capitalization tech stocks in recent years has been a factor in the relative return of the S&P 500 versus the major international benchmark known as EAFE (Europe, Australia and Far East). Over the past three years this has been an especially important factor in the relative performance of U.S. versus developed market ex-U.S. benchmarks. When technology led the U.S. market lower, EAFE was twice as likely to outperform the S&P 500 than when leadership was concentrated in large capitalization technology companies. Given our observation, this slice of the market is the most expensive and more likely to suffer a compression in valuation we are comfortable with the low technology sector weight in our primary overseas holdings for clients.
Notes & Disclosures
Index Returns – all shown in US dollars
All returns shown trailing 11/30/2021 for the period indicated. “YTD” refers to the total return as of prior-year end, while the other returns are annualized. 3-month and annualized returns are shown for:
- The S&P 500 index is comprised of large capitalized companies across many sectors and is generally regarded as representative of US stock market and is provided in this presentation in that regard only.
- The S&P 500® Equal Weight Index (EWI) is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight – or 0.2% of the index total at each quarterly rebalance. The S&P 500 equal-weight index (S&P 500 EWI) series imposes equal weights on the index constituents included in the S&P 500 that are classified in the respective GICS® sector.
- The S&P 500 Growth Index is comprised of equities from the S&P 500 that exhibit strong growth characteristics and is weighted by market-capitalization.
- The S&P 500 Value Index is a market-capitalization weighted index comprising of equities from the S&P 500 that exhibit strong value characteristics such as book value to price ratio, cash flow to price ratio, sales to price ratio, and dividend yield.
- The Russell 3000 Index tracks the performance of 3000 U.S. corporations, determined by market-capitalization, and represents 98% of the investable equity market in the United States.
- The Russell Mid Cap Index measures the mid-cap segment performance of the U.S. equity market and is comprised of approximately 800 of the smallest securities based on current index membership and their market capitalization.
- The Russell 2000 Index is a market-capitalization weighted index that measures the performance of 2000 small-cap and mid-cap securities. The index was formulated to give investors an unbiased collection of the smallest tradable equities still meeting exchange listing requirements.
- The MSCI All Country World Index provides a measure of performance for the equity market throughout the world and is a free float-adjusted market capitalization weighted index.
- The MSCI EAFE Index is a market-capitalization weighted index and tracks the performance of small to large-cap equities in developed markets of Europe, Australasia, and the Far East.
- The MSCI Emerging Markets Index is a float-adjusted market-capitalization index that measures equity market performance in global emerging markets and cannot be purchased directly by investors.
- The S&P Global BMI sector indices are into sectors as defined by the widely used Global Industry Classification Standards (GICS) classifications. Each sector index comprises those companies included in the S&P Global BMI that are classified as members of respective GICS® sector. The S&P Global BMI Indices were introduced to provide a comprehensive benchmarking system for global equity investors. The S&P Global BMI is comprised of the S&P Emerging BMI and the S&P Developed BMI. It covers approximately 10,000 companies in 46 countries. To be considered for inclusion in the index, all listed stocks within the constituent country must have a float market capitalization of at least $100 million. For a country to be admitted, it must be politically stable and have legal property rights and procedures, among other criteria.
- The Barclay’s US Aggregate Index, a broad-based unmanaged bond index that is generally considered to be representative of the performance of the investment grade, US dollar-denominated, fixed-rate taxable bond market.
- The Bloomberg Barclay’s US Corporate High Yield Index, which covers the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market.
An index is a portfolio of specific securities, the performance of which is often used as a benchmark in judging the relative performance to certain asset classes. Index performance used throughout is intended to illustrate historical market trends and performance. Indexes are managed and do not incur investment management fees. An investor is unable to invest in an index. Their performance does not reflect the expenses associated with the management of an actual portfolio. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. All investing involves risk including loss of principal. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal, and potential liquidity of the investment in a falling market. Past performance is no guarantee of future results.
Key Indicators correspond to various macro-economic and rate-related data points that we consider impactful to equity markets.
- The US 10-Year Treasury Yield (%)/bps, is the return on investment for the U.S. government’s 10-year debt obligation and serves as a signal for investor confidence.
- SPDR Gold Trust Price ($), is an investment fund that reflects the performance on the price of a gold bullion, less the Trust’s expenses.
- West Texas Intermediate, which is an oil benchmark and the underlying asset in the New York Mercantile Exchange’s oil futures contract.
- CBOE Volatility Index (Level)/% Change, which uses price options on the S&P 500 to estimate the market’s expectation of 30-day volatility.
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