Massive November rally across assets

Almost all asset classes rose during November, a relatively unusual occurrence. Major stock indices rallied during the month, led by the tech-heavy NASDAQ. Bonds rallied as yields sold off (price inverse to interest rates). Gold rallied. Silver rallied. Copper rallied. Coal rallied. Uranium rallied. Crypto rallied. The only exception was oil and gas, which were down significantly during the month.

• November is a seasonally strong month for stocks and other risk assets
• For most of this year, market participants have been bearishly positioned, expecting the recession that never came
• A strong market forces participants to chase, further fueling the rally
• In our view, it was the reversal in interest rates that sparked this recent rally
• Notably, the US Dollar was very weak during the month
• A weak US Dollar is generally supportive of US dollar-priced assets
• Our concern is that risk assets are rallying right into an economic slowdown

GDP revised higher, but outlook unclear

Real Gross Domestic Product (GDP) growth for Q3 2023 was revised higher to 5.2% on an annualized basis, greater than the prior estimate of 4.9%.  The upward revision was due to business and government spending, while consumer spending was revised lower. Nominal GDP, which does not adjust for inflation, was up a stunning 8.9% on an annualized basis. Notably however, Real Gross Domestic Income (GDI) came in at 1.5% on an annualized basis.

• GDP is a lagging economic indicator; how the economy was doing months ago is not representative of its current state
• As we have written about before, the divergence between GDP (high) and GDI (low) has been something to pay attention to
• The chart below (℅ Macromavens) shows the only 2 times that GDI has been negative while GDP was positive (2001 and 2007)
• In addition, FedNow's real GDP estimate for Q4 2023 has recently decelerated to 1.2%

Oil price falls following OPEC cuts

The Organization of the Petroleum Exporting Countries (OPEC) met virtually this week.  It announced an extension of existing voluntary production cuts by Saudi Arabia and Russia, with additional cuts by other members totaling 2.2 million barrels. OPEC nations are focused on lowering output as oil prices have come down meaningfully over the past several months, and there is concern about global economic growth in 2024. Importantly, OPEC+, as it is now called, invited Brazil to join the organization next year. Oil prices fell following the announcement.

• Oil prices have defied most observers being stubbornly weak, particularly in light of a continued war in Ukraine and the new war in the Middle East
• Prices fell following the announcement as market participants felt the cut announcements were largely a recycling of previous ones
• We believe some of the weakness in oil can be explained by continued sluggish economic activity in China