Kai W. Hong, CFA
Managing Director & Chief Investment Strategist

By the time the calendar rolled into November, the momentum from the market rally of the prior month was already tapering off. Economic data from China continued to be mixed, and the arrest or disappearance of several finance executives and an intensifying crackdown on financial firms there added to investor anxiety. US Federal Reserve Chair Yellen’s comments pointed strongly towards a mid-December increase in interest rates, and strong US job growth figures bolstered the position. This all served to further dampen risk appetites. At the same time, low inflation and a mediocre growth outlook in Europe meant that the ECB was likely to remain more accommodative in both magnitude and duration. A terrorist attack in Paris mid-month shook the geopolitical status quo, but it was unclear what, if any, significant changes in approach – to either Syria, ISIS, or the refugee crisis in Europe – that would drive. Non-US markets initially fell in reaction, but the US markets were surprisingly nonplussed. As consensus firmed around the Fed’s likely action in December, investors appeared more willing to engage. Q3 US GDP was also revised up from 1.5% to 2.1% annualized. On the commodity-side, oil prices resumed their descent from an intermediate plateau of $45/barrel towards the mid-$30s/barrel, presaging a challenging period to come for the Energy sector.

Following the strong rebound seen in October, market performance in November was more muted with the Russell 3000 Index finishing the month up +0.6%. However, that result masked meaningful intra-month volatility where the index fell 2.5% in the first two weeks and rebounded 3.1% in the last two weeks. Financial Services was the top sector for the month as defensives areas such as Utilities and Consumer Staples lagged. US small cap stocks outperformed large cap stocks for the month as relative leadership shifted temporarily, and the Russell 2000 Index returned +3.3% Outside of the US, performance was more challenging as dollar strength and global growth concerns weighed. The developed market MSCI World ex USA Index returned -1.6% while the developing market MSCI Emerging Markets Index returned -3.9%.