Back to Business – Foy Financial Services, Inc.

“Good investors gather information, put that information into current and historical context, then make sound decisions.”

Equity markets rewarded the completion of the November Elections with a sharp rally. While this may have been interpreted as the stock market’s endorsement of the results, it is impossible to determine whether a rally would have materialized regardless of the winner(s). Historically, equity markets have risen during presidential election years, regardless of the issues or the outcome. Financial markets may still appear to be very reactive to election news, but the long-term trend has ultimately maintained control. For reference, the long term trend for equities is positive as we are still enjoying the Bull Market that started back in October of 2022.

There was considerable talk about a ‘Trump Trade’ before the election. This would be a package of securities, stocks or bonds, that were perceived as being beneficiaries of the campaign promises. The operative words are ‘perceived’, which means someone’s opinion, and ‘promises’ which are often forgotten by January. Trading packages that are put together in anticipation of an outcome often quickly transition after the actual event. The Trump Trade included some themes that had been popularized back in 2023, such as AI, or artificial intelligence. It also included small and mid cap stocks, which benefit more from lower interest rates.

All but two of the equity indexes that we follow are positive in November. The only sectors that are lower are the S&P Health Care Index, down -1.44%, and the S&P Biotechnology Index, down -0.76%. While both of these industries are critical elements of the economy, the cries for lower health care costs were heard by all, so some initial pressure is not surprising. The best performing sectors in November have been technology, banking, and energy. The S&P Software and Services Index is up +17.51% in November alone, and up +29.54% YTD. The S&P Banks Index is up +12.78% MTD, and up +36.09% YTD. The energy sector has had a difficult 2^nd half of the year, enduring three moderate corrections in August, September and again in October. The S&P Oil & Gas Exploration & Production Index jumped up +13.65% after the election and is now up +9.98% YTD. The S&P Oil & Gas Equipment Index is up +12.66% MTD and is now up +4.17% YTD. One of the campaign slogans was Drill, Drill, Drill. We shall see.

A distinct disengagement following the election has been seen with international equity markets. This market sector has been ‘caboosing’ behind U.S. financial markets for several years. Earlier this year the MSCI EAFE Index, one of the oldest and broadest international equity indexes, began to challenge the S&P 500 Index. Interest in European and Emerging Markets was keen in September, but rapidly faded in October and November. The MSCI EAFE Index is down -2.36% in November and up +4.32% YTD. The MSCI Europe Index is down -3.40% in November and up +2.51% YTD. The MSCI Emerging Market Index is down -2.83% MTD and up +8.50% YTD. The Russia-Ukraine War and trade tariffs are the usual suspects.

Bond markets continue to have a challenging year. In spite of the Federal Reserve’s interest rate cuts, fixed income markets have had difficulty gaining ground. The Bloomberg U.S. Aggregate Bond Index (AGG) has declined -0.33% in November, and is up only +1.52% YTD. This is a total return number and takes into account the AGG’s current yield of 3.64%, so on a price-only basis the AGG is down YTD. The Bloomberg Municipal Bond Index is up +0.88% in November, and up +1.69% YTD. The best returns for the year thus far have been seen in the high yield corporate and high yield municipal bond markets. The Bloomberg High Yield Municipal Bond Index is up +1.05% MTD, and up +6.96% YTD, while the Bloomberg U.S. Corporate High Yield Bond Index is up +0.71% MTD and up +8.18% YTD. Since the election, equity markets have been quick to get back to business, while bond markets are still sorting out some details.

Edward D. Foy, Manager, SELECTOR^® Money Management, Chief Investment Officer, Foy Financial Services, Inc.

Sources: StockCharts, Morningstar, Stock Trader’s Almanac.