- US equity markets showed that they also can go down, especially on the last trading day of the month with the headline news of the new Covid variant. All-time highs were still reached in November, and we feel the bull market remains stable for now. The S&P 500 returned – 0.8% in the month and is + 21.6% for the year. The Dow Jones Industrial Average performed worse down – 3.7% and is + 12.6% on the year. The NASDAQ index returned + 0.25% in November and now is + 20.5% year-to-date. The Russell 2000 Index, which a measure of smaller sized companies returned – 4.3% in November and returned + 11.3% for the year. Energy, Real Estate, Financials and Technology have been the better performing sectors so far this year.
- International Equity Markets were down in the month of November. The MSCI EAFE Index returned – 4.8% for the month and is + 3.5% on the year. The MSCI Emerging Markets Index, also negative, was down – 4.1% in the month, bringing its year-to-date performance to – 6.1%. Brazilian equities moved slightly lower in November measured by the BOVESPA Stock Index, it returned – 1.5% over the month and has returned – 14.3% in 2021 through the end of November.
- US Fixed Income performance moved slightly higher, measured by the Bloomberg US Aggregate Total Return Index. November’s performance was + 0.3%, bringing its total return for the year to – 1.3% through November. The yield on the 10 Year US Treasury moved down from 1.58% to 1.44%, showing the inverse relationship between the price and interest rates of bonds, as rates move down the price of the bonds go up, and vice versa. Some Commodities were volatile in November, especially oil prices which declined – 20% in November. Year to date, Oil is still up + 37% though. Gold was down – 1% for the month and for the year is now down – 6%. Silver was down 5% for the month and – 13% for the year.
What we Did:
- The Proxy management team continued to be cautiously optimistic regarding U.S. equity markets. After a significant run up in the market from early to mid-November we trimmed our exposure to U.S. Growth in our Global Equity strategy, reducing QQQ by more than half and slightly trimming our semiconductor position. We also shifted towards a slightly more cautious posture increasing our cash position to upwards of 8% in all three of our equity strategies. In our Global Equity we also continue to hold gold (IAU), and have some TIPS as hedges against the broad equity market.
- In the Growth portfolio suffered a significant sell off in the latter half of the month. We trimmed some of the more aggressive names, realizing some losses, and positioning ourselves against a rotation towards quality which will likely cause them to be even more out of favor. We added Brookfield Renewable Partners near its 52-week low as longer term growth play, joining a handful of other clean energy stocks.
- In the Dividend Income portfolio, we have stayed the course with value oriented dividend payers. We initiated a position in Newmont Corp. This addition is not only a timely precious metals play we found to be a good value, but it also helped increase the portfolio’s average yield to just above 3.6%.
What we are Watching:
- Inflation pressures seem like they are here to stay, at least linger into the middle of 2022 says the Federal Reserve Chief Jerome Powell who will no longer use the term “transitory” when talking about inflation. We want watch what monetary policy steps will be taken by the FED to fight inflation. We expect them to stick with their long-standing accommodative policy, but they will certainly have to reduce how much they spike the punch bowl. If or when interest rates ever move significantly higher its effects on the equity markets could be a concern, especially with the aggressive growth technology names that have flourished in this low interest rate environment.
- How will all these inflationary pressures trickle down to the US consumer. Consumer sentiment turned negative as of late. Food and gasoline prices have increased significantly in 2021. Will inflation increase for employee wages? If so, salaries being paid to workers should increase and the US consumer can continue to spend come the holiday season. How will that effect company earnings in the upcoming year? Will the economy be mostly still propped up by government borrowing and consumer spending or will the services sector improve and real economic growth take hold, perhaps with the passage of the recent infrastructure bill. We want to see what are the catalysts that drive the US economy in 2022.
- International tensions between the economic powers of the world seem to remain elevated. The globalization of the world economy has taken hold over the few decades and there’s no going back but competition between the world’s economic powers and with geopolitical conflicts on multiple fronts the lines are starting to be drawn. China and Russia seem to be aligned against the interests of the Western world. Recent developments in Belarus, Ukraine and Taiwan could ripple out to disrupt the status quo. Supply chain bottlenecks seem to have subsided for the time being but the intellectual battle for the world’s cutting-edge technologies could prove to slow economic growth. Just look at the semiconductor sector as an example also in outer space. The use of military and commercial use satellites is an interesting new frontier, how these technologies provide a military and technology advantage could be quite significant. Another Covid variant recently made headlines, leading to more travel restrictions and economic uncertainty so that is something we also want to pay close attention too as well.
- We will continue to help advise our clients through the end of 2021 and into the new year. Happy Holidays from the Proxy Financial Team!