Five Turkey-Time Takes on the Market

DEWITT, Mich. - Nov. 28, 2023 - PRLog -- This past week brought our holiday opportunity to focus on the things we're thankful for. With Thanksgiving 2022  coming as stocks were down 16% on the year, 2023 has brought a market more worthy of investors' thanks. Thanksgiving also marks a turn into the homestretch for the year. Therefore, we've dished up a few holiday perspectives on market performance that may help set the table for the year ahead:

1. Post-turkey track record:

• The stock market has historically done well after Thanksgiving. Over the last 30 years, the average return in December has been roughly 1%, with the market logging a post-holiday gain roughly three-quarters of the time. The best was December 2010 with a rally of 6.5%, followed by 2003, 1999 and 1998, which saw post-Thanksgiving gains of more than 5%.¹

2. A recipe to sustain the stock-market rally:

• Ongoing moderation in inflation: Perhaps one of the key ingredients to the rally thus far has been a consistent trend of lower inflation. Headline consumer price index (CPI) inflation for October came down to 3.2% year-over-year, while core inflation moderated to 4.0%. At the end of the month, investors will get the October reading of personal consumption expenditures (PCE) and core PCE inflation, the Fed's preferred inflation measures.

3. Underperforming small-caps: A Thanksgiving comeback story?

• 2023 has been a notable year so far for small-cap stocks, but for the wrong reasons. The Russell 2000, a proxy for U.S. small-caps, is on pace to trail the S&P 500 by about 15%, the widest margin in a calendar year since 1998². Worries about an economic slowdown and high interest rates on the back of aggressive Fed tightening have been the main culprits for the underperformance.

4. Weight check: S&P 500 overindulged on largest sectors?

• The narrow leadership of the S&P 500 this year can raise questions about the value of diversification. The S&P 500 index has risen by over 15% year-to-date, while the S&P 500 equal-weighted index has seen a more modest 4% rise, highlighting that much of this year's gain has been driven by the indexes' largest companies.³ Today, the top three sectors of the S&P 500 comprise over 50% of the index, and the 10 largest stocks account for over 30%.⁴

5. Baking with bonds has gotten sweeter

Bond-market performance has left a sour taste in the mouths of investors, an unwelcomed experience at any Thanksgiving table. Interest rates moved sharply higher this year, continuing a three-year upward trend in yields.

Sources: 1. Bloomberg, performance of the S&P 500 index. 2. Bloomberg, Edward Jones 3.  Morningstar Direct, Edward Jones. 4, FactSet