November was a peculiar month in the markets. Equity markets began the month strongly, but after about the first week, each day seemed to bring lukewarm economic data or corporate reports, and the US stock market fell back. Especially toward the end of the month, renewed fears of fiscal problems in Europe in general, and Ireland in particular, raised fears of further instability in credit markets and the global financial system. One side-effect was a sharp weakening of the euro against the US dollar. Financial journalists, noting a recent association between dollar weakness and stock market strength, suggested that the stronger dollar would be bad for equity markets. Yet while the market fell at the open on several trading days, it recovered strongly at the end of a number of those days. The S&P 500 index ended the month with not much to show for all the action — it returned +0.01% for November. The Mid-cap 400 index, however, returned +2.97%, and the Small-cap 600 index was stronger still, returning +3.56%. Growth again did better than value in each capitalization range. [Index returns: Standard and Poors]
With the troubles in Europe, overseas markets were a bit weaker than those in the US. The MSCI Barra EAFE international equity index ended the month with a return of –0.99% in local currencies. Meanwhile, the US dollar, which had fallen sharply in recent months, rebounded strongly. The dollar strengthened to 83.64 yen, compared to 80.47 yen at the end of October. The dollar also rose against the pound Sterling, ending November at $1.5563 to the pound, from $1.6022 a month earlier. The most dramatic move, though, was against the euro. The dollar ended November at $1.298 against the European currency, from $1.391 at the end of October. The overall currency effect was detrimental to US investors, and EAFE returned –4.81% in US dollars. [Index returns: MSCI Barra. Exchange rates: Federal Reserve H.10 release and Yahoo! Finance]
Interest rates jumped in November, as stirrings of economic recovery, and possible inflation, continued. The yield on the two-year US Treasury note ended the month at 0.45% (from 0.34% at the end of October). The yield on the ten-year rose to 2.81%, from 2.63% a month earlier. The bond market’s return reflected the rise in rates, as the Barclays Capital US Aggregate Bond index returned –0.57%. [Index returns: Barclays Capital. Treasury yields: US Treasury].