November was another stellar month for both the stock and bond markets. For two weeks in early October it looked like the long awaited market correction was finally upon us. The eight to ten percent price declines were quickly erased and by the time November began the markets were back on their bullish trajectory. When historians analyze returns of the S&P 500, this run will be a bull market by any definition. Although it’s a bull market on paper, it’s been a bear market waiting to happen in the hearts and minds of many investors.
This bull market sprouted from the ashes of the 2008 financial crisis. Many investors lost trust in Wall Street, corporate America, the government and the markets themselves. While the negative noise from the media was overwhelming, the market quietly began to notice economic improvements which translated into higher stock prices. Prices rose due to confident consumers, profitable growing companies with reasonable valuations, low inflation, low interest rates, higher productivity, and ever expanding technology. These factors are likely to propel the market higher in the quarters and years ahead but there will be corrections along the way. If we compare this bull market to past ones there is still plenty of time and room for price appreciation and long term wealth creation.
November’s stock market results had similar themes to previous months. The U.S. outperformed international and smaller companies outperformed larger companies. NASDAQ, on the strength of Apple Computer and other technology companies, lead the way with a 3.66 percent return for the month. The Dow Jones Industrial Average and the S & P 500 were close behind with a respectable 2.69 and 2.86 percent return. Major international equity indices were slightly negative for the month leaving them barely positive over the trailing twelve months.
In bond land, interest rates traded in a very tight trading range for most of the month until the strong dollar and weak oil prices provided a small bond rally into month end. The 10-year U.S. Treasury broke through 2.20 percent once again heading toward that magical 2.00 percent yield. The high yield sector of the bond market was subject to additional credit spread widening as investors demanded a higher premium for debt rated below investment grade. High yield spreads are widening from historical tight levels, so the move here to wider spreads and lower prices is both rational and welcome for longer term bond valuations.
Coming off the October scare, it’s important to remind ourselves market timing is a loser’s game. We cannot tell where the market will be at the end of this year or next, but we can say with certainty the stock market creates wealth over long periods of time. The bond market generates income, albeit a small in today’s world, and can balance the risk of stock ownership. Together in the right proportions a portfolio can be built to properly manage risk and keep investor’s invested. The adage, “It’s time in the market, not timing the market”, provides great investment advice. The key to financial success is finding your own personal balance point that keeps you invested throughout the various market cycles. Discuss your personal financial situation with your independent advisor to design a personalized balanced portfolio, then, let it grow.