Stocks soared in November with the S&P 500 (^GSPC), Dow Jones Industrial Average (^DJI), and Nasdaq (^IXIC) all posting their best monthly gains of 2023 as investor focus shifts from when interest rates will peak to when they'll start falling.
The S&P 500 closed the month up 8.9% while the Nasdaq popped 10.7%, the indexes' best monthly gains since July 2022. The widespread rally also included major moves higher in areas that had lagged throughout 2023 such as the Russell 2000 (^RUT), which gained about 8.8% on the month. The Dow also rose about 8.8% in November, for its best monthly performance since October 2022.
"It's one of the best months we've seen in the last decade," eToro US investment analyst Callie Cox told Yahoo Finance Live. "And I think it shows us how a lot of investors were caught off guard by the Fed's flexible stance after the Nov. 1 meeting."
The Fed kept interest rates steady at its last meeting at the beginning of November, and investors largely digested the central bank's messaging to indicate it's done hiking rates.
Since then, incoming economic data has only backed up that case. Two different reads on inflation showed price increases are at their lowest levels in more than two years. Meanwhile, the latest jobs data has pointed to a softening labor market that's robust enough to support some economic growth but not so tight that it could spark a resurgence in inflation.
This has prompted investors to bet that interest rates will move lower in 2024. Markets are now pricing in a 92% chance of a rate cut by the end of the June meeting, up from a 60% chance a month ago, per the CME FedWatch tool.
Within stocks, interest rate sensitive sectors leading the way. For the month, Real Estate (XLRE) and Technology (XLK) gained more than 12% while Financials (XLF) and Consumer Discretionary (XLY) rose more than 10%.
Cox's research shows that when a one-month rolling return for the S&P 500 hits more than 9.2%, a stat the benchmark average reached earlier this week, then the path forward is usually higher.
On average, stocks gain 14.9% in the 12 months after a run like the recent spurt for stocks. Anything lower brings the S&P 500 an average return of 8.7%.
"Momentum begets momentum in the stock market, that can work in the bulls' favor," Cox said.
Josh Schafer is a reporter for Yahoo Finance.
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance