Please find our most recent market review below. Following the commentary, you will find a table of returns for widely available ETFs that represent the major markets. Below that are five simple portfolio mixes, composed of low-cost Vanguard ETFs. These can be used as a guide against which to compare your portfolio mix. We hope this information is of value to you.
– The AdvicePeriod Team
Monthly Market Review
By Nathan Sonnenberg
AdvicePeriod Chief Investment Officer
November was a volatile month in the markets, as investors, already worried about persistent inflation, confronted the newly discovered Omicron variant of COVID-19. With the exception of bonds and large-cap tech stocks, markets were down across the board.
U.S. stocks (VTI) fell 1.46% for the month, while developed international stocks (VEA) dropped by 4.64%. Emerging-market equities were down 2.90%. Bonds, a perceived safe haven, benefited, as municipal bonds (MUB) gained 0.73% and U.S. bonds rose 0.20%.
Stocks struggled as many of the concerns highlighted last month became more pronounced. These include:
- Slowing global growth
- The newly discovered Omicron COVID variant and the persistent Delta variant
- Stubbornly high inflation levels
- Persistence of supply chain bottlenecks
- The rapidly approaching debt ceiling and delay of Build Back Better passage
- Chilly U.S.-China relations and uncertain, erratic Chinese policy actions
The markets pushed up against a number of economic headwinds in November. Front and center was inflation. Measures of inflation for consumers and producers remained significantly above ranges Federal Reserve chairman Jerome Powell considers acceptable. For the 12 months that ended in October, the annual rate of U.S. consumer inflation was 6.2%–the highest level since November of 1990.
Amid the inflation news, the Fed announced, in its November meeting, that it will slowly reduce its support of the economy: The agency will taper its purchases of Treasury and mortgage bonds, currently $120 billion per month, by $15 billion per month over the next six months.
Meanwhile, interest rates fell in November over concerns of slowing economic growth: Yields on the benchmark 10-year Treasury bond dropped to 1.44% at month’s end from 1.56% at its beginning. The 30-year Treasury bond yield ended the month at 1.78%, down from 1.94%.
November’s employment picture was mixed: 210,000 new jobs were created, falling far short of projections. But the unemployment rate fell to 4.2%.
Finally, real gross domestic product, an inflation-adjusted measure that reflects the value of goods and services produced by the economy, rose at a disappointing annualized rate of 2% in the third quarter. That followed a second-quarter increase of 6.7%. The real GDP dropoff was caused in large part by a slowdown in consumer spending, which in turn was largely due to a resurgence of COVID cases. The good news is that faster growth may already be under way. As of December 7, 2021, the Atlanta Fed’s annualized estimate for fourth-quarter GDP stood at 8.6%, up from 8.2% on October 31.
The impact of COVID makes it particularly difficult to forecast the economy and markets. But it’s always smart to maintain a diversified portfolio, stay invested according to a well-designed plan, and to minimize costs and taxes. No one can control the markets, but the things we’re able to control can make a substantial difference in our long-term financial success.
Major Market Index Returns Period Ending 12/1/2021 (Annualized)
Selections include widely available ETFs. Multi-year returns are annualized and net of management fees, but do not include trading and advisory fees. Return source: Morningstar. AP Disclosure
Sample Portfolio Mix Returns (Annualized)
Global portfolio mixes comprise stocks and bonds, as represented by VT (Vanguard Total World Stock Index Fund ETF) and BND (Vanguard Total Bond Market Index Fund ETF). Multi-year returns are annualized. Performance is net of all management fees but does not include trading and advisory fees. Return source: Morningstar. AP Disclosure
What You Pay For: The Percentage of Active Managers That Underperform Their Benchmarks
Trailing 10 Years Numbers As of December 31st, 2020 – S&P Spiva Scorecard
Percentage of US large-cap funds that underperformed their benchmarks
US large-cap benchmark:
Percentage of international funds that underperformed their benchmarks
S&P International 700
Percentage of emerging market funds that underperformed their benchmarks
Emerging Markets benchmark: