Market Recap:
Markets were volatile in November with the S&P 500 finishing slightly positive. This was not surprising given how dependent the current rally is on a small group of companies tied to the AI theme. During the late 1990s, we saw similar behavior with elevated volatility as the market pushed to new highs.
Market breadth, or the percentage of stocks above their 200 day moving averages, improved through the second half of November to around 62%, up from 55% mid-month.
What We’re Watching:
While stocks were choppy in November, Bitcoin took a significant hit falling 30% from its high in October. Bitcoin tends to react quickly to changes in liquidity and investor sentiment which makes it a useful gauge for shifts in risk appetite. Over the past five years it has also been closely correlated with tech stocks.
However, the dynamics between risk assets and safe haven assets appear to be shifting. Very speculative areas like crypto are struggling while equities continue to grind higher. At the same time, metals have continued their breakout. Gold is up over 50% this year and silver is up over 90%
This type of divergence is worth paying attention to. Investors appear to be rotating within the risk spectrum rather than stepping away from it altogether.
Chart of the Month:
Commodities vs Gold
Gold has surged to new highs while the equal weighted commodity index has moved sideways. Historically, these two trend together. The widening gap suggests that gold is responding to underlying monetary or macro pressures before they are reflected in the broader commodity complex.
Investors are looking for assets that hold value through periods of uncertainty and inflation. The strength in metals is consistent with a shift toward hard assets, and it may only be a matter of time until we see the broader commodity index begin to catchup with the move in gold.
