Capital Market With Ups and Downs In November 2021
In November, the capital market closed with negative results in most of the stock markets globally.
In the first part of the month, the main stock exchanges globally extended the gains associated with two main factors:
1. Optimism for the quarterly reporting season. It is worth mentioning that within the S&P 500, about 84% of companies exceeded market expectations in terms of profits. This allowed the S&P 500 to continue setting new all-time highs during the month, reaching its latest high on November 22 at 4,743.83 points.
2. Reduction in the uncertainty of the real estate in London sector. In November, the real estate company Evergrande avoided falling into default by paying the interest on the outstanding bonds, making three payments at the end of the 30-day grace period.
However, capital market losses were concentrated in the last weeks of November, when global risk aversion increased due to:
1. Concerns about inflationary pressures. In the United States, the producer price index for October stood at 8.6% in annual terms, while consumer inflation increased 6.2% annually, its highest level since 1990. For its part, inflation in the United Kingdom was at an annual rate of 4.2%, the highest level in a decade, while in Germany producer inflation stood at 18.4% per year during October, the highest on record since 1951.
Higher inflation has a negative impact on the capital market for two main reasons: 1) it reduces company margins and 2) it increases speculation of less flexible monetary positions on the part of central banks of advanced economies, which implies less liquidity.
2. An increase in COVID-19 cases, especially in Europe. In the penultimate week of the month, Austria announced new confinement lasting 20 days, being the first European country to reimpose this type of measure. The uncertainty surrounding the pandemic was reflected in losses in cyclical sectors, although it benefited technological ones.
3. The identification of the new variant of the coronavirus, omicron. On Friday, November 26, significant losses were observed in stock indices around the world, after several European Union countries announced travel restrictions to Africa, properties in Miami. Later, on Tuesday, November 30, risk aversion returned because the pharmaceutical company Moderna Inc. mentioned that vaccines could be less effective against the omicron variant.
The expectation of a less flexible monetary policy by the Federal Reserve
. During the month, several regional Fed presidents mentioned the possibility of increasing the pace of the cut in the bond purchase program. Similarly, Fed Chairman Jerome Powell, who will remain in that position for a second term, mentioned that they will discuss an increase in the pace of the program cut during their meeting on December 14-15. This would allow the Fed to initiate interest rate increases earlier than expected.
In the coming days, the market will continue to watch for news related to the omicron variant, especially the effectiveness of the vaccines, which could give an indication of its impact on the economy. Likewise, the discussion of the increase in the debt limit in the United States during the month of December will be relevant.
Thus, in the United States, the main stock indices closed with mixed results. The Dow Jones and S&P 500 indices fell at monthly rates of 3.73% and 0.83% respectively, towards levels of 34,483.72 and 4,567.00 points, while the Nasdaq advanced 0.25% monthly, closing at 15,537.69 units. The Nasdaq performed relatively better as the uncertainty surrounding the pandemic benefits tech companies. It is worth mentioning that, during the month, the three indices reached new all-time highs with the Dow Jones marking its last maximum on November 8 at 36,565.73 points, while the S&P 500 and the Nasdaq recorded their last all-time high on November 22 at 4,743.83 and 16,212.23 points, respectively. Thus, to the penultimate month of the year, the main US indices show significant annual returns: Dow Jones with 12.67%, S&P 500 with 21.59%, and Nasdaq with 20.56%.
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