Market Commentary 12/07/23

Equities Trade Higher as Treasury Yields Decline

The most significant impact on financial asset prices during November was the decline in interest rates, with the 10-year Treasury yield falling to 4.35% from over 5% in October. For context, this decline ranks among the biggest 1-month drops since December 2008, when the Federal Reserve cut interest rates by 0.75%. Declining Treasury yields provided relief to bonds, which had traded lower as the Federal Reserve hiked rates. The Bloomberg U.S. Bond Aggregate Index, which tracks a broad index of U.S. bonds, produced a 4.6% monthly total return; the first monthly gain in seven months and its largest since 1985.

The decline in yields helped the stock market rebound after trading lower for three consecutive months. The S&P 500 recorded its biggest monthly gain (9%) since July 2022 and currently trades less than 5% below its all-time closing high. The NASDAQ 100 Index gained more than 10% for the month as mega-cap growth technology stocks traded toward new all-time highs. Technology was also the top-performing S&P 500 sector. Real Estate followed close behind, benefiting from falling interest rates that provided relief to property owners. Defensive sectors, including Consumer Staples, Utilities, and Health Care, lagged as the market traded higher.

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Investments in fixed-income securities are subject to market, interest rate, credit and other risks. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can cause a bond’s price to fall. Credit risk is the risk that an issuer will default on payments of interest and/or principal. This risk is heightened in lower rated bonds. If sold prior to maturity, fixed income securities are subject to market risk. All fixed income investments may be worth less than their original cost upon redemption or maturity.

The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index with each stock’s weight in the Index proportionate to its market value.


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