Monthly Market Summary
- The S&P 500 Index of large cap stocks produced a -0.8% total return during November, outperforming the Russell 2000 Index’s -4.3% total return.
- Tech’s +4.5% return made it the top performing sector, followed by Consumer Discretionary’s +1.6% return. Communication Services -6.1% return qualified as the worst performing sector, with Financials close behind at -5.7%.
- Investment grade bonds generated a -0.1% total return, outperforming high yield bonds’ -1.2% total return.
- The MSCI EAFE Index of developed market stocks returned -4.5% during November, underperforming the MSCI Emerging Market Index’s -4.1% return.
Omicron Variant Update
The newest Covid variant, Omicron, surfaced the last week of November. Omicron emerged in South Africa and is spreading rapidly, but the reality is that much is still unknown. It will take weeks of analysis and incoming case data to understand how much of a threat Omicron poses, such as transmissibility and disease severity. However, the few known details are raising concerns for health officials. An initial review of Omicron's genomic sequence indicates it has picked up dozens of mutations, including those known to evade immunity and increase transmissibility. Health officials and researchers are concerned the high number of mutations may make Omicron more contagious and difficult to contain. Additionally, there is uncertainty about how much protection current vaccines provide against Omicron.
State of the Market
Markets are understandably nervous about Omicron and sold off quickly following the news. Riskier asset classes, such as small cap U.S. stocks, emerging market equities, and high yield corporate bonds, underperformed during the final days of November. Interest rates declined as investors purchased U.S. Treasury bonds, while the yield on high yield corporate bonds rose as investors demanded more yield to compensate for a higher perceived level of risk. The price of a barrel of WTI Crude Oil plunged more than -15% during November on fears of decreased energy demand.
We believe a key leading indicator for the U.S. stock market will be Omicron cases in Europe. Covid data from earlier in 2021 regarding the Delta variant shows European Covid trends have generally led U.S. Covid trends by approximately 1-month. Initial cases in Europe suggests U.S. cases may rise in December. We caution the next few weeks will be full of speculation, but it is important to focus on the facts and data. While the Delta variant slowed third-quarter U.S. GDP growth, economic growth remained positive. The Omicron variant may increase volatility and cause restrictions to be reimposed, but consumers and business are more adapted to living with restrictions. Remember, patience produces rewards for long term investors.