What Happened In November?
It was a month that tested investors’ resolve and discipline.
November started well, with a gain for the TSX, the Dow, S&P500 and the NASDAQ in the first few days of the month. For the next two weeks the major indices dropped dramatically, triggering the use of “correction”, “bear market” and other pessimistic terminology. However, during the last week of the month, a rally occurred bringing all four major equity indices back into positive territory for the month. What was once dire, became positive, although doubts remain.
After all of the turmoil and angst in equity markets during November, each index delivered a respectable return. The NASDAQ, which had lost the most at the mid-month mark didn’t do as well as the other indices, but still managed to rally back to positive territory.
After all of this stress and anxiety it might be healthy to discuss the lessons from November:
- Time frame matters
- If every investor examined their portfolio’s value every minute or hourly they wouldn’t have time to do anything else. It is important to monitor the value, but it is crucial to understand that valuation only matters if it is when you intend to sell a particular security. That is, the stock you bought at $100, may be valued at $50 or $200, but it only really matters on the day that you sell it.
- Company fundamentals matter
- The stock (or equity fund), above, was purchased because its predicted business results would drive the value of its shares upward. If it pays a dividend, its strong performance would also permit the uninterrupted payment to shareholders. Regardless of the effect on markets of interest rates, trade treaties, or political unrest it is better to own companies that deliver strong fiscal results, than not.
- Overall market and economics matter
- The phrase “a rising tide lifts all boats”, which has been attributed to President Kennedy relies on the principle that favourable economic conditions will benefit everyone. Of course, the opposite is also true.
- Planning matters
- Setting goals and determining whether the securities in your portfolio are making a positive contribution to their attainment is crucial. Christopher Columbus may have discovered North America by accident as he tried to sail to India, but he did have a plan, and he adjusted it as time passed, and new information emerged.
Therefore, the overall message is “build a strong plan, monitor its performance based on overall market conditions, always assessing whether your securities contribute positively to your plan and decide if you should consolidate losses, realize gains or allow your plan to continue to run.”
What’s ahead for December and beyond?
The emerging consensus is that interest rate increases in the U.S. and Canada will slow as the economic expansion begins to slow. Recent data for Gross Domestic Product, inflation and employment is suggesting that increases in 2018 and early 2019 are less likely than thought just a few months ago.
Any slowdown in rate increases could be reversed by improved trade relations between China and United States and increases to inflation if OPEC is able to successfully defend and increase the price of oil.
Lastly, the upcoming holiday shopping season will provide insight into consumer confidence, and future company performance.
Image 1: Stock exchange source: https://www.bloomberg.com/markets
Image 2: Advisor Research Group Inc. and data supplied by https://www.bloomberg.com/markets/stocks
Article Source: Advisor Research Group – Market Update 11.30.2018