Monthly Market Monitor: November 2011

Equity markets reversed course in November with a strong relief rally the last three days of the month neutralizing intense fallout from Europe’s burgeoning debt crisis. When all was said and done, the U.S. equity markets posted flat results for the month. Post-Thanksgiving Day holiday shopping together with a coordinated six central bank intervention on November 30th drove a 7.6% S&P 500 rebound, nearly erasing earlier losses associated with the euro-zone’s debt crisis contagion that spread from Greece to Italy and Spain. The exhilarating 490-point Dow Jones Industrials Average recovery on November 30th was its best one-day advance since March 2009 and notably, its seventh-largest daily point gain of all time. Large-cap stocks outperformed small-cap companies as the Russell 2000 Index, a proxy of small-cap equity performance fell 0.5% in November.

Faltering investor confidence was expressed by record low Italian debt auction participation rates, which drove its 10-year sovereign bonds above the psychologically important 7% mark. Italian 10-year debt yield traded as high as 7.3%, while Spain followed closely reaching a peak November yield of 6.7%. Adverse pressures spread across the globe culminating with the extraordinary month-end six central bank cross-currency dollar swap intervention. The intervention allows the Federal Reserve to less expensively lend US dollars for pledged euros, allowing the European Central Bank to extend dollar loans to EU banks, which in turn boosts liquidity to the entire financial system.

In total return sector performance, seven of the ten S&P 500 major market groups advanced in November with Consumer Staples (+2.7%), Energy (+2%) and Utilities (+1.1%) the top performers. Financials (-4.8%), Technology (-1.7%) and Consumer Discretionary (-0.7%) were the three lagging sectors. The defensive sectors proved to be the best year-to-date performers with Utilities holding the top position, up 16% including dividends, followed by Consumer Staples (+10.9%) and Healthcare (+9.5%). Financials is the worst year-to-date sector laggard, down 18.5%.

Non-U.S. developed equity markets experienced far worse performance last month, down 4.8% as measured by the MSCI EAFE Index. Economic slowdowns marked by severe flooding in Thailand (that hampered technology and auto parts supply chains) drove significant losses in the MSCI Emerging Markets Index, down nearly 6.7% on the month. Furthermore, China’s PMI manufacturing activity index turned to contraction for the first time since early 2009.

On a backdrop of generally improving U.S. economic data, the benchmark 10-year U.S. Treasury yield rose in November by a modest 8 basis points to 2.07%. Investment grade corporate bonds ended fractionally lower last month, down 0.09% as measured by the Barclays US Aggregate Bond Index. This asset class however has delivered a solid 2011 year-to-date gain of 6.7%. Municipal bonds were November’s star performing asset class, as the Barclays Municipals Index rose 0.6%. Municipals continue to be the best performing asset classes on a year-to-date basis, up 8.6%. High-yield corporate bonds were the largest lagging fixed-income performer in November, as measured by the 2.2% decline in the Barclays US Corporate High Yield Index.

This information is compiled by Cetera Financial Group. No independent analysis has been performed and the material should not be construed as investment advice. Investment decisions should not be based on this material since the information contained here is a singular update, and prudent investment decisions require the analysis of a much broader collection of facts and context. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

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