U.S. Equity Markets Rally Expected to Continue in November

The best month of the year for the U.S. equity markets lies ahead. November has been historically bullish for U.S. stocks, and so the bias is that the rally in the equity markets will continue. 

Market participants feared that the Fed’s upcoming tapering of its bond-buying program would trigger a taper tantrum. The last times when the Fed tapered, the U.S. equity markets corrected more 5% or more.

At the start of November, the Federal Reserve of the United States holds its meeting and will likely announce the tapering. But is a correction imminent? Not so, as indicated by historical data.

November has been historically strong, delivering positive returns since the 1950s. In the past ten years, for example, November has been the best month for stocks. As such, if history tells us something, it is that we will see new all-time highs in stocks, despite the Fed preparing to remove the stimulus by announcing the tapering of its bond-buying program.

Interest Rates to Remain Low For Another Year

One of the reasons why markets may not be impressed by the tapering this year is the interest rate level. The Fed has no intention to hike the federal funds rate anytime soon and thus assets inflation.

Here are some examples: stocks trade at all-time highs, home prices are at all-time highs, Bitcoin is at all-time highs, job openings at all-time highs, and thus, wages are at an all-time high.

Yet, the Fed is on course to hold interest rates down at 0% for yet another year, thus boosting assets and inflation further. As such, this November’s tapering may differ from what happened in the past.