To say November was a tough month for investors would be quite an understatement. While the S&P 500 held up relatively OK compared to the rest of the world, limiting losses to under a percentage point, there was significant deviation beneath the surface. The YTD outperformers like the Financial and Energy sectors both fell by around 5% with the loss in the Communications sector topping 6%. After a stellar 2020 and a lukewarm 2021, the Tech sector awoke to register a gain of nearly 4.5% last month. Such numbers at the index level still do not do justice to the volatility we have seen of late in some of the popular single names.
Fixed Income investors on the other hand, after suffering through a tough 2020 and probably worse 2021, were vindicated to some extent as the risk-off move saw government debt rise and yields fall across most of the world. No such respite for HY investors though, as US credit spreads widened from record lows and China HY continued to feel the pressure of the real estate debt crisis. Though things evened out a little here with Evergrande and Kaisa in restricted default in the first half of December and the authorities working hard to provide liquidity onshore, things are likely to stay volatile for offshore creditors into the year-end.
The commonly cited diversification benefits of Commodities and Crypto could not be relied on for November either. Weighed down by Crude's spectacular almost 20% decline on the month, the broad commodities sector performed worse than equities, seeing declines of around 7-8%. While we have since recovered some of the Omicron-related selloffs at the end of Nov, the road ahead on consumer demand still remains uncertain. Crypto saw some divergence with Ethereum stepping up and Bitcoin falling back. Even Gold, which should traditionally do well in a risk-off, higher inflation environment, was down half a percentage point in Nov.
Given the broad picture overall, a diversified approach still appears to be the best defence against market volatility and preserving the portfolio gains seen earlier in 2021.
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December 17, 2021
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