November Market Commentary: Well, That Was Going Well

November recap and December outlook.

sailing in bad weather

November started with a very positive October jobs report that exceeded expectations. It set a tone of optimism that the recovery was getting back on track after a summer of dealing with the Delta variant. After months of speculation, the Fed put some numbers and timing around the long-awaited tapering process, announcing that it would begin reducing bond purchases.


The initial amounts are a decrease of $10 billion in U.S. Treasury purchases and a decrease of $5 billion in mortgage-backed securities, from the current monthly purchase amount of $80 billion Treasury securities and $40 billion mortgage-backed securities. The program is now scheduled to end this summer, and the relatively small monthly decreases are meant to provide a very smooth ride that hopefully won’t jolt equity markets. Data releases throughout the month remained relatively positive as the holiday season and Black Friday approached.

Over the Thanksgiving holiday, reports of the Omicron variant were followed by questions and uncertainty that rattled markets. Travel restrictions that were finally lifted just weeks ago could potentially be reinstated, and some municipalities are already going back to earlier, more stringent guidance on protective behavior. However, with vaccine numbers rising and booster shots readily available, the focus of markets doesn’t seem to be on the latest COVID development. Instead, rising inflation and Federal Reserve Chairman Powell’s finally retiring the “transitory” language are highlighting a new reality that supply chains, increasing wages, and the expectation of higher inflation could be here for some time to come.


Let’s Talk About Inflation. Everyone Else Is.


What’s the Latest Data?


The Bureau of Labor statistics reported that the Consumer Price Index rose 0.9% for the month and 6.2% year over year in October. That year-over-year gain was the strongest since 1991. The CPI was up 0.6% from the previous month and 4.6% year over year, even excluding food and energy. This is the most recent data we have; November data will be released on December 11th.


The last period of high inflation – the 1970s – is frequently invoked when discussing the increase. For the sake of comparison, inflation coming out of the 1960s was already at 6%, and it hit over 14% over the course of the decade. Everybody breathe; we’re not even close.


What Does This Say About the Future Path of Inflation?


In short, not much. The factors driving inflation are directly related to the demand for goods that is not being met due to supply chain disruptions and labor force shortages. Looking at one-year CPI growth from January 2018-October 2021, and breaking out Core Goods and Core Services separately, Core Goods was under 2% at the beginning of the year and is now over 8%. Core Services dipped during 2020 but have recovered to the pre-pandemic level of just over 2%.[1] Services are a large contributor to the economy, and prices here are holding steady. So, two potential paths would seem to be indicated. In the first, supply chain and labor disruptions resolve. There is some evidence this is already happening; November employment data from the BLS showed that wage growth is slowing, and a recent Mckinsey survey reports that supply chain fixes are a massive priority for businesses.[2]


Are Equities Able to Keep Up?


Companies that can pass on prices to consumers have a built-in inflation hedge. Whether they are succeeding (or not) tends to show up in earnings, which drive stock prices. Despite scary headlines and the highest inflation we’ve seen in decades, the first two earnings seasons of 2021 were barnburners and the 3Q earnings season is following suit. S&P Global reports that 2021 estimates for earnings called for a record year, with the expectation of a 65.2% gain over 2020. Operating margins for Q3 2021 remained high, coming in at 13.20%.


Chart of the Month

12 Month percentage change, consumer price index
Source: Bureau of Labor Statistics. October 2021, selected categories, not seasonally adjusted.

Equity Markets

  • The S&P 500 was down 0.83% in November bringing its YTD return to 21.59%

  • The Dow Jones Industrial Average fell 3.74% for the month and was up 12.67% YTD

  • The S&P Mid-Cap 400 decreased 3.06% for the month resulting in a 17.03% YTD return

  • The S&P Small Cap 600 lost 2.42% in November, putting the YTD return at 20.04%.

Source: All performance quoted from S&P Dow Jones Indices.


For the month, only two sectors of the S&P 500 gained. Information Technology did the best, adding 4.23%. Consumer Discretionary was next, up 1.90%. Energy was the worst performer as oil prices declined and was down 5.84% for the month. The sector is up 45.53% year-to-date but is still 10.02% below where it was at the close of 2019.


Bond Markets


The 10-year U.S. Treasury ended the month at 1.43% a drop from the high of 1.67% reached shortly before news of the Omicron variant broke. The Bloomberg Barclays U.S. Aggregate Index was slightly positive at 0.29% but is still negative year-to-date with a return of -1.28%. As represented by the Bloomberg Barclays Municipal Bond Index, Municipal bonds returned 0.85% for a year-to-date return of 1.35%. The Bloomberg Barclays U.S. High Yield Index suffered a decline as the market turned to “risk-off” positioning. The month’s -0.97% return reduced the year-to-date return to 3.34%.


The Smart Investor


There’s still time left in 2021 to perform annual housekeeping tasks that will save on taxes and set you up for next year. Be sure you’re contributing as much as possible to employer-sponsored retirement savings plans and Health Savings Plans. Don’t neglect charitable giving – a proper strategy is essential for your financial plan now and your legacy. In portfolio terms, you should be positioned for the long term. The drop in markets related to Chairman Powell’s new inflation and tapering language, as well as the Omicron variant’s emergence, was largely seen as a potential buying opportunity. Inflation may no longer be regarded as “transitory,” but it also isn’t likely to be a decade-long double-digit phenomenon. So, no big changes are likely to be necessary for those who have been diligent in monitoring and positioning their portfolios in recent months.


Stay the course, but trim sails for the prevailing winds.


  1. Edelberg, Wendy. What Does Current Inflation Tell Us About the Future? Brookings Institute. November 16, 2021.

  2. McKinsey & Company. How COVID 19 Is Reshaping Supply Chains. November 23, 2021.

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