Markets in Focus

Timely analysis of market moves and sectors of opportunity

Dec. 4, 2023: After a November to remember, now what?

Key points

  • November saw a full market rally, with corporate credit, global equities and emerging-market currencies posting monthly returns two standard deviations above historical averages.

  • Still, the broader market of stocks has room for more catch-up: The S&P 500® Equal Weight Index has underperformed the cap-weighted S&P 500 Index by 13.3% year to date.

  • Now could be a time to lean into what has been working with an eye on a further increase in market breadth next year.



The price action over the past month has been spectacular with broad strength across asset classes, sectors and the full market-capitalization spectrum.

Yet it’s important to remember that this strength didn’t come from nowhere, said Matt Orton, CFA, Chief Market Strategist at Raymond James Investment Management, and there’s a lesson in that for the near future.

“This bounce in November is proof of what I’ve been discussing all year,” Orton said. “You don’t need to chase this market higher, but you should be opportunistic when you’re given the opportunity to put money to work. That is exactly what you had during early to mid-October, when the drawdown on the S&P 500 Index was almost 10% and a lot of high-quality parts of the market sold off hard and disconnected from fundamentals.”

During November, high-yield and investment-grade corporate credit; global equities; and emerging-market currencies all saw monthly returns that were two standard deviations above historical averages. Within U.S. equities, what started as a narrow recovery broadened into a full market rally by mid-November, giving Orton increased confidence in the sustainability of recent gains into the end of the year.

That said, “the time to turn bullish was back in October, not now when the market is tactically overbought and momentum is overextended,” he said. This will be an important week for setting the tone into the end of the year: Will punters continue to press their bets in search of a quick profit and help the market melt-up or will they take profits and close shop for the rest of the year? Seasonality tends to be strong in December – it’s the S&P 500’s best-performing month over the past 50 years – but gains tend to come in the latter half of the month. Additionally, rate re-pricing over the past month has been extreme with financial conditions loosening considerably heading into an important jobs report on Friday.

The current risk-reward set-up isn’t especially attractive for putting new money to work, but I remain optimistic heading into 2024.

“I have been consistent in refraining from chasing the market higher and instead waiting for periods of extreme pessimism to opportunistically re-deploy capital to the market, and that remains the case today,” Orton said. “The current risk-reward set-up isn’t especially attractive for putting new money to work, but I remain optimistic heading into 2024.”

Ratio of S&P 500 Equal Weight Index to S&P 500

Ratio of S&P 500 Equal Weight Index to S&P 500

Market breadth has been terrible for most of 2023, and the most recent rally also started with just a handful of companies. We’re finally seeing much-needed broad-based participation, giving Orton confidence in the durability of the rally. He said the ratio of the “market of stocks,” as represented by the S&P 500 Equal Weight Index, to the “stock market” needs to keep expanding, and that is his expectation heading into 2024.

Source: Bloomberg, as of 12/1/23

Specifically, Orton noted that the broader market of stocks has a long runway for catch-up as the S&P 500® Equal Weight Index has underperformed the cap-weighted S&P 500 Index by 13.3% year to date. Investors who are willing to be patient and selective could continue to be rewarded, he said.

Given the extent of the November rally and the macroeconomic uncertainty that remains, Orton said it’s likely that markets take a bit of a breather in the short term. The sharp move in financial conditions could be a risk to the market: If the current levels were to persist, that would effectively erase the additional tightening from financial conditions that has been a Fed talking point in recent months. If activity momentum picks up or if progress on inflation stalls, he expects Fed officials will likely be more concerned about broader financial conditions not being aligned with their intentions. Ultimately, the data will decide the Fed’s course and the payrolls report on Friday will be the next key data release to watch. With 135 basis points (bps) of cuts now priced for next year, Orton said he sees few compelling reasons to add risk. But at this point in the cycle, he noted that there is an asymmetric risk for the front-end of the curve to rally further should the economy show signs of faltering, especially on the employment side.

What looks attractive now

The stock and bond markets both had a remarkable November and posted very strong performance last week. Two-year Treasury yields fell 39 bps last week while five-year yields fell 34 bps. That’s the most since the regional banking crisis in March and early April and one of the steepest declines since the Global Financial Crisis. Fed Chair Jerome Powell and other Fed speakers haven’t been able to push back against the current market narrative of rising bets on rate cuts next year – but the easy money has already been made. Still, that may not mean it’s time to sell. While we could see some increased volatility in the near term, Orton said it wouldn’t be unreasonable to see a further melt-up now that we’re in the blackout period in advance of the December Federal Open Market Committee meeting.

“I would be leaning into what has been working and playing for a further increase in market breadth next year,” he said. Consequently, areas he likes include:

  • Quality and portfolio diversifiers.

    • Quality has held up well in the face of the everything rally. Economic uncertainty hasn’t gone anywhere, and Orton expects it to return to the narrative once performance-chasing exhausts itself. Owning the parts of the market where earnings growth will reaccelerate next year will be critical, which is why Orton said he continues to look for high-quality companies (that is, those with attractive returns on equity, robust free cash flows, strong balance sheets, etc.) that still trade at reasonable valuations (and he believes “there are plenty of them”).

    • There are also some tactical diversifying opportunities, specifically in gold mining companies, he said. If real yields continue to break down, gold can extend its rise, and gold miners have not followed their historical beta to the commodity. There could be some nice upside in the short term if recent trends continue, he said.

    • There are also some tactical diversifying opportunities, specifically in gold mining companies, he said. If real yields continue to break down, gold can extend its rise, and gold miners have not followed their historical beta to the commodity. There could be some nice upside in the short term if recent trends continue, he said.

  • Rotation opportunities in small caps. Small caps performed well over the past month, but the performance gap between large and small actually widened and stands at the widest level since 1999. Orton said he would expect to see small caps outperform if the current narrative of rate cuts holds in the market. Valuations remain very attractive on an absolute and relative basis, and earnings trends look to reach an inflection point that Orton said could benefit small caps next year. Practice patience and be opportunistic in looking for quality small caps, he said, but remember that selectivity is far more important in small-cap land where the Russell 2000® Index is loaded with non-earning companies and other junk.

  • Lean into the mega trends. Economic growth is undeniably slowing into next year, and amid so much macro noise, investors have much to pay attention to. Orton suggests leaning into the long-term megatrends that he expects to shape the investment landscape of the future like artificial intelligence (AI), the energy transition, reshoring’s impact on the capital expenditure cycle, and an aging U.S. population that is poised to need care for more chronic diseases. There are still areas of information technology that look attractive with leverage to AI, and industrials have been a source of strength in the market recently. There is room for this strength to continue, especially for companies with leverage to these long-term trends.

What to watch

  • The main event on the economic calendar this week will be the U.S. jobs report on Friday. Given the significant rate re-pricing that took place last week, Orton said he’s not sure that nonfarm payrolls data will do much to change the current narrative, as much as Powell might want it to.

  • The Job Openings and Labor Turnover Survey (JOLTS) on Tuesday will be important as a gauge of underlying labor tightness.

  • The Services ISM® Report on Business® and University of Michigan Index of Consumer Sentiment will shed light on inflation expectations.


Risk Information:
Investing involves risk, including risk of loss.

Diversification does not ensure a profit or guarantee against loss.

Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce return.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Raymond James Investment Management or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

The views and opinions expressed are not necessarily those of the broker/dealer or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules, and guidelines.

Absolute return is the return that an asset achieves over a specific period of time. A relative return is the return an asset achieves compared to a benchmark indicator over a specific period.

Asymmetric risk describes a risk posed when the gain (or loss) that could result from the movement of an underlying asset or metric in one direction is significantly different from the loss (or gain) that would take place from a move in the other direction.

Basis points (bps) are measurements used in discussions of interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%.

Beta is a measure of the volatility or systemic risk of a security, group of securities, or portfolio compared with the market as a whole.

Breadth describes the relationship between the median and the mean of a market index. When a few data outliers result in a mean that is substantially larger (or smaller) than the median of the full data set, then the performance of the entire index is being driven by a “narrow” selection of companies. An index supported by “broad” market movements is one where the median is closer to the mean.

An exchange-traded fund (ETF) is a type of security that tracks a market index, sector, commodity, or other assets, but which can be bought or sold on a stock exchange the same way a regular stock or other security can. An ETF can be structured to track a wide variety of securities, including stocks, bonds, individual commodities, diverse aggregations of securities, and specific investment strategies.

Fade describes an investment strategy of trading against a prevailing trend in the market.

The Federal Open Market Committee (FOMC) consists of 12 members: the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining 11 Reserve Bank presidents, who serve one-year terms on a rotating basis. The FOMC holds eight regularly scheduled meetings per year at which it reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth. The FOMC observes a blackout period, which begins at midnight of the second Saturday before each meeting. During the blackout periods, committee members do not make public comments about macroeconomic developments or monetary policy issues.

High-yield bonds pay higher interest rates because they have lower credit ratings than investment-grade bonds. High-yield bonds have credit ratings below BBB- from Standard & Poor’s or below Baa3 from Moody’s.

Investment-grade refers to fixed-income securities rated BBB or better by Standard & Poor’s or Baa or better by Moody’s.

The Job Openings and Labor Turnover Survey (JOLTS) program produces monthly data on job openings, hires, and separations compiled by the U.S. Bureau of Labor Statistics.

Market of stocks is a term market participants use when referring to the diversity of technical or other characteristics that may exist at any given time within the overall stock market. For example, the stock market as a whole may rise or fall on the fortunes of a small number of very large and thus very influential stocks. But within the broader market of stocks, there can be many companies with performance, risk, or opportunities that vary significantly from what market participants may find at the index level.

Melting up is when an investment asset experiences a sustained (and often unexpected) improvement in performance. This is usually believed to be caused by extreme shifts in investor sentiment and not improvements in market fundamentals.

Momentum investing is a strategy that aims to capitalize on the continuance of an existing market trend. It is a trading strategy in which investors buy securities that are already rising and look to sell them when they look to have peaked. It entails taking long positions on financial instruments with prices trending up and short positions on instruments with prices trending down.

Overbought is a term used to describe a security or group of securities believed to be trading at a level above its or their intrinsic or fair value.

Overextended is a term used to describe an investment, industry or sector with performance that has substantially and potentially unsustainably moved away from a longer-term average in a short period of time.

The payroll report, officially known as the Employment Situation Summary, is a monthly U.S. Bureau of Labor Statistics (BLS) report tracking nonfarm payroll employment and the national unemployment rate, with data on changes in average hourly earnings, and job trends in public and private sectors of employment. The report is based on surveys of households and employers.

A punter is a slang term for a speculative investor who makes trades, often unbacked by research, analysis or due diligence, in the pursuit of quick or oversized gains in financial markets.

Quality investing is a strategy that seeks to invest in companies with low debt, stable earnings, consistent asset growth, and strong corporate governance, as reflected in financial metrics such as ratios of return to equity and debt to equity, as well as to earnings variability.

A real yield, or interest rate, is an interest rate that has been adjusted to remove the effects of inflation. In contrast, a nominal interest rate is one that has not been adjusted to remove the effects of inflation. Once adjusted, the real interest rate reflects the real cost of funds to a borrower and the real yield to a lender or to an investor. A real interest rate reflects the rate of time preference for current goods over future goods. For an investment, a real interest rate is calculated as the difference between the nominal interest rate, which is not adjusted for inflation, and the inflation rate.

Reshoring describes the effort to bring manufacturing and other services back to the United States from overseas operations.

Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders’ equity.

Seasonality refers to predictable changes that occur over a one-year period in a business, market, market sector, or economy based on the season, including calendar or commercial seasons.

The Services ISM® Report on Business® is produced by the Institute for Supply Management (ISM) and is based on data compiled from purchasing and supply executives in a wide variety of industries nationwide. Survey responses reflect the change, if any, in the current month compared to the previous month in supplier deliveries along with seasonally adjusted business activity, new orders, and employment.

Standard deviation is a measure of the dispersal or uncertainty in a random variable. For example, if a financial variable is highly volatile, it has a high standard deviation. Standard deviation is frequently used as a measure of the volatility of a random financial variable.

Tightening, also known as credit tightening, is a decline in lending activity by financial institutions brought on by a sudden shortage of funds or an increase in interest rates that raises the costs of lending and accordingly drives down demand.

The University of Michigan Index of Consumer Sentiment is based on monthly telephone surveys in which at least 500 consumers in the continental United States are asked 50 questions about what they think now and what their expectations are for their personal finances, business conditions, and buying conditions. Their responses are used to calculate monthly measures of consumer sentiment that can be compared to a base value of 100 set in 1966.

The S&P 500 Index measures change in stock market conditions based on the average performance of 500 widely held common stocks. It is a marketweighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 80% of the investable U.S. equity market.

The S&P 500® Equal Weight Index is the equal-weight version of the S&P 500. It includes the same constituents as the capitalization-weighted S&P 500, but each company in the S&P 500 Equal Weight Index is allocated a fixed weight, or 0.2% of the index total at each quarterly rebalance.

The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 7% of the total market capitalization of the Russell 3000® Index.

London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2023. FTSE Russell is a trading name of certain of the LSE Group companies. Russell® is a trademark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor, or endorse the content of this communication.


M-465571 Exp. 4/4/2024