Markets sold off in November. Generally, it was driven by concerns over valuations in technology and Artificial Intelligence (AI). This had a marked negative effect on the US equity market, and because the US represents a large part of global index (over 70% of MSCI World is in the US) it had an impact on the broader global equity index too. The US declined -1.8%, while the global index was off -1.4%.
Equity markets though negative overall for November, rebounded from a deeper trough in the month. The US equity market was down nearly -5% at the lowest point. Markets began to recover on the back of stronger than expected economic data and expectations of a central bank interest rate-cut by the Fed in the US. Another positive was that 80% of US companies that reported third quarter earnings beat expectations. This included Nvidia, the world’s highest valued company, whose sales grew by 62% as profit exceeded expectations to reach $31.9bn.
The markets least impacted by the US and AI sell-off were Europe and the UK, which were both essentially flat. Investors in the UK had been waiting for announcements from the Autumn Budget on the 26th of the month. What was delivered whilst not great (a tax & spend budget), was not as negative as many had feared. Even though the Budget proposals are not as supportive for growth as had been hoped, they potentially provide scope for the Bank of England (BoE) to be able to cut UK interest rates going forward, which could be a positive for UK equities and the bond market.
Emerging markets and the Asian equity markets have been the leading markets so far this year. These markets sold-off – 3.1% and -2.6% in this risk-off environment. The Nikkei was hit by tensions between Japan and China. A war of words, sparked by Japanese Prime Sanae Takaichi saying Chinese action against Taiwan would prompt a Japanese military response, escalated into Beijing implementing a no-travel advisory for Japan and banning Japanese seafood.
Defensive assets delivered positive returns and good diversification for multi-asset portfolios. With equity markets retreating, and with the prospect of rate cuts from the Fed, we saw gold rebounding strongly with a return of +5.0%. At the same time fixed income markets delivered marginally positive returns.
Despite being a down month for most equity markets, we must not lose sight of the strong performance we’ve seen across the board through the year, and notably the strength in markets since the lows post Liberation Day. It was always likely at some point that markets might take a breather.