November saw a decisive bullish rebound, with stocks, bonds, and precious metals surging despite economic uncertainty. Discover what fueled the comeback and what it means for investors.
It was a September to remember for investors, as positive returns stretched across every major asset class. Fueled by the first interest rate cut of the year, renewed enthusiasm around artificial intelligence, and surprising economic resilience, markets gave investors plenty to celebrate as summer turned to fall.
Precious Metals Shine with Double-Digit Gains
Precious metals led the gains with a blistering return of 10.92% for the month, bringing the year-to-date return to a whopping 45.88% based on the S&P GSCI Precious Metals index. The index is now averaging a 32.88% return per year over the last three years. This performance has handily beat the performance of the S&P 500, which has returned 23.24% per year over the last three years.
Given the winning streak for precious metals, large investment firms that historically have ignored them are now piling into the asset class, pushing gains further up.
Why Precious Metals Are Surging
There are several reasons for the surge in precious metals – geopolitical tensions, inflation concerns, government debt loads, and weakness in the dollar seem to be the biggest contributors to the demand for metals. The performance is exciting for investors in precious metals; it also may signal a more troubling outlook for the future for stock and bond returns.
Traditionally, US Treasuries have been the safe haven asset that investors around the globe turn to in times of panic. Precious metals are gaining more traction in filling this roll, particularly for geopolitical rivals such as China. If global demand for treasuries wanes longer term interest rates could move higher. Additional debt issuance in the form of deficit spending may compound the issue.
Stocks Post Solid Gains
Although the returns on stocks were not as glittery as precious metals, the S&P 500 had the best September in 15 years. Powered by continued investment in AI, the first interest rate cut of the year, and consumer spending, the index returned 3.65% for the month, bringing the year-to-date return to 14.83%.
AI Drives Technology Sector Growth
Gains were led by Information Technology as the AI theme continues to play out. Oracle was the big winner for the month with a jump over 30% in the stock price after an announced deal with OpenAI. Despite the stellar returns of tech stocks over the past few years, warning signs are mounting. Talk of a bubble in AI stocks is being spurred by high valuations, massive spending on AI infrastructure increasingly funded by debt, and the circular nature of deals between companies are all concerning.
Mid and Small Cap Stocks Benefit from Interest Rate Cuts
Mid cap and small cap stocks were also positive for the month, returning 0.46% and 0.98% based on the S&P MidCap 400 and S&P SmallCap 600 indexes, respectively. The first interest rate cut of the year in September provided optimism that a new rate cut cycle is just getting underway, paving the way for higher returns in these more interest rate sensitive markets. The response to rate cuts was stronger in the Russell 2000 index, which includes unprofitable companies, unlike the S&P indexes. This highlights both the effect of rate cuts and the risk appetite of investors.
Foreign Stocks Continue to Climb
Foreign stocks continue to follow their US counterparts higher with the S&P Developed Ex-US BMI and S&P Emerging BMI indexes returning 1.91% and 4.84% for the month. Foreign stocks continue to outpace US stocks for the year. Greece and South Korea continue to shine on the positive side, while Argentina is struggling again.
Bonds Turn Positive
The bond market was positive with the S&P US Aggregate index returning 1.03% for the month. The first interest rate cut of the year lowered short-term rates, ended the month higher than the day rate cuts were announced. The is reminiscent of last year, when short-term rates moved opposite to long term.
Political Pressure on the Federal Reserve
The incredible amount of political pressure put on the Federal Reserve has economists and investors questioning whether the cut was politically motivated. The stated reason for the cut was due to weakness in the labor market. However, inflation has stayed above the Fed’s stated mandate of 2% and has increased in the past few months. Chairman Jerome Powell has consistently stated in the past that he viewed inflation as a bigger threat to the economy than unemployment.
A Challenging Policy Environment
The Federal Reserve has been in a difficult position given uncertain fiscal policy, weakening employment, and stubborn inflation. Increasing deficits and potential for the Supreme Court to repeal the tariff policies continue to complicate matters. The addition of Stephen Miran, and the potential firing of Lisa Cook, add additional layers of uncertainty to the monetary policy outlook.
Investors End the Month on a High Note
While concerns continue to lurk, investors will just remember the portfolio growth they experienced for the month.
Investment Commentary by Jason Flores, CFA, CAIA – Executive Vice President & Chief Investment Officer at Central Trust Company.
At Central Trust Company, we continue to reassess the rapidly changing investment landscape for both risks and opportunities. If you would like to access our full monthly outlook and additional investment commentary, visit our Investments Learning Center. As always, if you have questions or concerns, please contact your Central Trust Company team. We are always ready to help.
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