November was an interesting month, and the first three days of December kept us on the edge of our seats. Equities were down a bit in November (other than “Big Tech”) as we again experienced fear of Covid, a new variant–so the “reopening trade” stops, and we go back to high-priced tech stocks that do better when we are in lockdown. That being said, the modest declines were the result of some big up and down days, or big intraday moves which largely reversed by the close. A lot of movement and uncertainty. I won’t bore you with all the numbers. The S&P 500 lost .69% for the month.[i]
Last week the story changed, and the tech selloff began yet again. While the S&P 500 fell 1.2% for the week, the tech-heavy NASDAQ index fell 2.6%.[ii]
Meanwhile, as others outside the Fed and the government have been saying for months, we are getting hot inflation numbers, and now the Fed has abandoned their “transitory” messaging and acknowledged that we have real inflation and need to tighten Fed policy. Finally.
Unfortunately, even as inflation looms, we got bad jobs numbers Friday — nonfarm payrolls increased 210,000, less than half what was expected.[iii] And even in the face of faster tapering from the Fed, interest rates fell, with the 10-year Treasury yield declining to 1.35%.[iv]
I wish I could offer a succinct explanation for all this. All I can say is it is a good time to be well-diversified, as expensive sectors like information technology demonstrate that they can fall sharply on bad news.
This week, Omicron fears seem to have subsided, and stocks have rallied yet again.
Speaking of well-diversified – let’s geek out for a moment
Interesting article in the Wall Street Journal about the largest mutual fund in the US, the Vanguard Total Stock Market Index Fund, weighing in at $1.3 trillion.[v] The interesting part is that Vanguard is using the CRSP Index from the University of Chicago’s Booth School of Business.
Long story short, this database was developed starting in 1960 at Booth and has been instrumental in the development of modern finance, including the factor models (small cap, value, profitability) we use in our clients’ portfolios. We have spoken of Dimensional Fund Advisors and Chicago Booth research many times.
This holiday season we sincerely offer you our best wishes and hope you can overcome the supply chain issues to accomplish your shopping missions!
[i] Source: Morningstar, data as of 11/30/2021.
[ii] Fitzgerald, M. and Miao, H., 2021. [online] Available at: <https://www.cnbc.com/2021/12/02/stock-futures-market-open-close-news.html> [Accessed 6 December 2021].
[iii] Fitzgerald, M. and Miao, H., 2021. [online] Available at: <https://www.cnbc.com/2021/12/02/stock-futures-market-open-close-news.html> [Accessed 6 December 2021].
[iv] Treasury.gov. 2021. Daily Treasury Par Yield Curve Rates. [online] Available at: <https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yield> [Accessed 6 December 2021].
[v] Smith, R., 2021. The Mutual Fund That Ate Wall Street—Based on an Index Few People Know About. [online] WSJ. Available at: <https://www.wsj.com/articles/mutual-funds-that-ate-wall-st-11638390382?st=j340dukb4ogetpb&reflink=desktopwebshare_permalink> [Accessed 6 December 2021].
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