The 5.73% gain in the S&P 500 index in November trumped the performance of every other month this year and one has to go back to the 8.91% gain of last November for a better monthly market performance. November was the ninth positive month of the year and brought the S&P 500’s gains to 26.47% in 2024 so far (see the green line in the chart below). If the dividend yield is included, the S&P 500 has returned a total of 28.07% this year. The benchmark US index has continued to make records and closed out November at a fresh all-time high, its 53rd record high for the year. Earlier in the month the index closed above 6,000 points for the first time after only closing above the 5,000 points level for the first time in February. The incredible market performance this year follows the 24.23% index gain last year and for the two years to end-November, the S&P 500 has gained 47.84%. In contrast, the FTSE/JSE All Share index lost 1.0% in November to leave the local bourse up 9.91% for the year (the blue line in the chart below) and with a total return of 11.07%.
FTSE/JSE All Share index (blue, RHS) and S&P 500 index (green, LHS): 12 months to 30 Nov 24
Source: Factset
There was a lot for the markets to digest in November with the US elections, the Federal Reserve Bank’s second rate cut, the tail-end of the US third quarter reporting season (including market giant Nvidia) and all of the “regular” geopolitical sabre-rattling, war-mongering and conflict. The defining event, however, was the outcome of the US elections. In the days leading up to the 5 November election, the markets had already begun to price in the “Trump trade” and post the elections, after a brief pullback, the positive momentum resumed. The winning asset classes and equity market sectors were all those expected to benefit from the incoming president’s “America first” policies. Those announced policies of lower taxes, less regulation and higher tariffs were seen as expansionary but at the expense of higher inflation and a higher national debt. The prospect of reduced regulation was expected to benefit banks, the cryptocurrency markets and the private capital markets where more merger and acquisition activity would be in prospect with more new companies being brought to the listed equity markets. Trump’s “drill, baby drill” approach to make America less reliant on oil imports was considered a boon for the carbon energy markets but very much less so for the renewable energy market.
The potential for higher inflation and consequently “higher for longer” interest rates was supportive of the US dollar as other countries and regions, particularly Europe, cut interest rates more aggressively as inflation approached targets amidst weak economic growth. The US dollar, which reached its weakest level of the year at $1.12/€ in September, appreciated to $1.09/€ by the end of October and continued to trade down below $1.05/€ before finishing November at its best 2024 monthly close of $1.06/€. US bond yields initially sold off in the earlier part of the month before rallying to close out the month at slightly better levels than where they started. The US Federal Reserve Bank cut interest rates by 25 basis points to 4.75% as expected but Chairman Jerome Powell was insistent that the incoming president did not have the power to fire him and that he would remain in his seat until his term expired in 2026. He was also very insistent that the economy and the labour market where in good shape with inflation stubbornly not quite getting to the target – a situation that gave the Federal Reserve the latitude to ease policy at a slower pace if that was what was required. A December rate cut from the Federal Reserve would depend very much on the incoming data on inflation, employment and growth published before the next policy meeting. The election outcome has, however, raised the expected interest rate floor for the target of the Federal Funds rate in the current cycle closer to 3.50% (from around 3.00% earlier).
The casualty of the stronger dollar was the resources market where gold fell from its 30 October all-time high of $2,777/oz to $2,567/oz mid-November before closing out the month at $2,651/oz (see table below). The platinum group metals lost ground post the elections and the fall in the palladium price was precipitous, collapsing from a $1,277/oz high on 29 October to $923/oz mid-November and a closing price at month-end of $990/oz. The picture for platinum was the same with a difference of $100/oz from the 29 October high to the end-November close. The oil price had two failed rallies to $76/bbl during the month but ultimately closed at $71.85/bbl where it has found some price support over the past quarter. The promise of the OPEC+ consortium bringing back more production along with Libya’s restarted production has kept the oil price on the back foot.
The stronger US dollar saw the rand depreciate against the greenback during November with the local currency stopping just short of its opening levels for the year at R18.06/$. The weaker euro resulted in a modest gain for the rand in November with the rand still around 5% better against the European currency this year. Local bond yields followed the lower trend of US bond yields with the bond market and the rand gaining a modicum of confidence from S&P Global Ratings’ revision of their outlook on South Africa from stable to positive. While not a rating upgrade in itself, the upwardly revised outlook does open the door for a possible rating upgrade in the future.
The South African Reserve Bank’s Monetary Policy Committee announced its policy decision on 21 November and the 25 basis point cut was exactly as expected. The governor announced that at no point in the committee’s deliberations did they consider or debate any larger size rate cut. The governor was also very adamant that it would not be providing any guidance on future policy as the committee only deliberated on the latest information to hand and that the next policy decision, as always, would be entirely dependent on the latest published economic data. With no further meetings of the Reserve Bank this year, the focus turns to expectations for next year and with six meetings scheduled for 2025, the expectation currently is for around a further 75 basis points of easing, potentially a rate cut of 25 basis points at every second meeting but it could all be front-loaded at the first meetings of the year.
With the weakness in resources prices described above, it was no surprise that it was the resources sector that dragged the JSE lower over the past month. During November, the Financials index gained 0.50% and the Industrials index lost 1.05% but the Resources index lost a hefty 6.61%. The reason is quite apparent from the monthly losers list below where gold and platinum miners are the top six biggest losers, all with losses of over 10% during November. Sasol is next worst with a loss of 10.5% to take its losses to 52.6% for the year. Mr Price had another good month (+12.5%) post the announcement of financial results and the stock remains firmly entrenched as the biggest winner this year with a gain of 83.6%. Pick n Pay also had a good month ahead of the listing of Boxer which was well oversubscribed. On listing on 28 November, Boxer traded well above its placing price of R54.00 per share and with all the new listing excitement, the share closed out the month at R67.00 per share – a 24% premium to the placement price.
The US third quarter earnings season wound down during November and Nvidia posted its much-awaited results on the 20th. Expectations for Nvidia have gone stratospheric and even with record quarterly revenue of $35.1bn (up 94% y/y) and earnings growth of 103% y/y, the market was left wanting by the guidance which was not as exuberant as many would have liked. The share price improved from $132.76 to $138.63 over the month (+4.4%) but it had traded as high as $146.67 on the day after the results announcement. It is hard to believe that this purveyor of fine semiconductor chips was trading at the equivalent of $14.61 per share at the start of last year. The big winner during November was Tesla (+38%) with the incoming president expected to look favourably on his major sponsor and new best friend and promote the advancement of US technology. The pharmaceutical stocks, in contrast, had a terrible month on prospects of the new administration pushing for lower drug prices but mostly on the back of the appointment of brain worm survivor Robert F Kennedy Jr as US Health Secretary – a known vaccine sceptic. The losers list for the month below is littered with pharma companies with the five biggest losers of the month all from that industry.
While Nvidia (+179.3%) remains the clear winner for the year so far, Intel (-52.2%) has retained its mantle of biggest loser. It is hard to believe that both companies are in the same industry and an industry that is currently riding the crest of the wave. The poor performance of Intel has had repercussions and on the first trading day of the new month it was announced that CEO Pat Gelsinger had retired effective 1 December 2024 after a 40+ year career at the business. Two interim co-chief executive officers were appointed while Intel looks for a new permanent CEO.
Sectors that outperformed the S&P 500 index’s positive 5.73% return in November included Consumer Discretionary (+13.24%), Financials (+10.16%), Industrials (+7.33%) and Energy (+6.28%). The underperforming sectors included Healthcare (+0.13%), Materials (+1.45%), Communication Services (+3.09%), Utilities (+3.16%), Real Estate (+3.98%), Consumer Staples (+4.55%), and Technology (+4.57%).
With the US fourth quarter earnings reporting season only set to kick off in the second week of January, the markets will likely be driven by any relevant news on the US domestic political front as well as the global stage. Front and centre will be the political goings on in France which are of key importance to that country as well as the whole European region. France is in the midst of a financial and political crisis as it tries to bring its deficit down from around 6% of GDP but that requires massive cuts in expenditure and big increases in taxes – not a good financial position for any country to be in but a very precarious one for a country with a fragile coalition government. With the US markets a lot more US-centric, the focus will be on the Federal Reserve’s 18 December policy announcement. With a first rate cut in this cycle of 50 basis points, a second cut of 25 basis points last month and a very adamant and insistent “policy decisions are data dependent” stance, the jury is out on the Federal Reserve’s next move. On balance the expectation is for another 25 basis point cut but that outcome is far from assured.
As December rolls on we will all be starting to think of the new year and what might transpire for ourselves, our families, the markets and the world in general. From this vantage point it looks like we are in for a little more of the same in terms of pedestrian global growth, slowly declining interest rates and a lot of geopolitical noise. One cannot ignore the numerous smouldering issues that could still erupt (China-Taiwan being one) but one hopes that cool heads ultimately prevail. The local market has legs to recover from a low base after a few moribund years but there is a growing level of optimism and confidence in the country, albeit fragile, that could see our growth start improving. The US markets look rich but the growth in earnings should still come through to see the markets show modest positive gains next year. We should just not expect to see the same magnitude of returns out of the US that we have been spoiled with over the past two years.