November Student of the Market
This month's Student of the Market highlights
- Seasonal stock returns
- Bond market returns
- Stocks by size
- Stock sectors
- Income asset classes
- Inflation challenges
- Food inflation
Seasonal Stock Returns
Stocks are entering a seasonal period of higher returns. Since 1926, stocks have had an average return of 7.5% from November 1 to April 30 and 4.4% from May 1 to October 31. Over the last 40 years, stocks have had an average return of 9.2% from November 1 to April 30 and 4.0% from May 1 to October 31. Over the last 20 years, stocks have had an average return of 7.3% from November 1 to April 30 and 3.5% from May 1 to October 31.
Bond Market Returns
2021 is on pace to be one of the worst total return years for bonds, but only the 20th worst based on price return. The top 10 worst years for bonds based on total returns have been 1956, 1955, 1969, 1999, 1958, YTD 2021, 2013, 1931, and 1994.
Stocks Sectors
The energy sector is leading for the 1st time since 2016.
Income Asset Classes
In a low interest rate world, income asset classes have more downside risk. Typical multi-asset income mutual funds have captured 52% of the upside and 66% of the downside over the last 10-year period for allocation funds that have income over 4%.
Inflation Challenges
Unlike previous inflationary periods, interest rates are not keeping up. In 2021, there has been a large gap between interests rates and inflation. Two other periods that had large gaps between interest rates and inflation were December of 1974 and June of 1980. In December of 1974, inflation minus interest rates was -4.7%. One year after December 1974, the stock returns were 37.2% and the bond returns were 7.8%. In June of 1980, inflation minus interest rates was -4.2%. One year after June 1980, the stock returns were 20.6% and the bond returns were -5.2%. In September of 2021, inflation minus interest rates was -3.9%.
Food Inflation
Certain broad categories of foods had large price changes from September 30 of 2020 to September 30 of 2021. Meat, poultry, fish, and eggs increased in price by 10.5%. Nonalcoholic beverages increased in price by 3.7%. Within a few broad categories, there are several notable inflation items. Bacon and related products increased in price by 19.3%. Other facts and oils including peanut butter increased in price by 10.7%. Apples increased in price by 7.8%.
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