Devon Funds Monthly Investor Report - November 2023

Monday 11th December 2023

The early promise of November played out in earnest as stock markets had their best month in a long time and in some cases years. The US led from the front with the S&P500 and Nasdaq enjoying the best month since July 2022, gaining 8.7% and 10.7% respectively. The Dow (which hit a record high) jumped 8.8%, the biggest monthly gain since October last year. The MSCI World index rose 9%, a feat not matched since news of a COVID-19 vaccine emerged in late 2020. The New Zealand and Australian markets joined in the rally as well. The NZX50 surged 5.3% in November while the ASX200 gained 5%.

After a testing period through September and October, ‘animal spirits’ are back and markets have rallied hard, driven by the notion that falling rates of inflation mean that central banks can not only pause rate hikes but talk about cutting them at some juncture. Bond yields have declined, in stark contrast to what occurred during September and October. The US 10-year Treasury yield peaked at 5% in October and was under 4.3% by the end if the month. Risk appetite has also increased with the world economy set to emerge from a sustained rate-tightening phase in a relatively resilient shape.

Falling rates of inflation have boosted investor sentiment. The Fed’s preferred inflation gauge chilled in October. The Core Personal Consumption Expenditures (PCE) Price Index rose 3.5% on a year-over-year basis, slowing from a 3.7% annual gain in the prior month. This is the lowest level in more than two years. Falling energy prices saw headline PCE fall to 3% from 3.4%. On a monthly basis, the PCE index was up just 0.1%, as prices for goods declined 0.3% while those for services gained 0.2%. Parts of the US economy are now deflating as opposed to inflating.

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