I think we can all agree that November was a very busy month. From the Presidential Election results to the recovery efforts from Superstorm Sandy to the Capital Hill negotiations, there was plenty of news for investors to digest along with their Thanksgiving turkey. With December now upon us, let’s take advantage of the relative calm to revisit the highlights from last month.
In the first week, all eyes were on the polls for the 2012 Presidential Election. As we all know, President Obama ended up winning by a wider than expected margin, and this introduced a slew of new issues for investors. Certain sectors were hit by the Obama victory, most notably energy stocks, and some investors pulled out with the thinking that they could avoid higher capital gain and dividend taxes next year.
(I will add that I don’t advocate such a strategy. With the S&P 500 yielding over 2%, there isn’t really anywhere else to invest with better returns. So I expect that we’ll see this selling action reverse as investors realize that they should’ve stayed put.)
An unintended, but positive, consequence of the election results is that companies have started to aggressively buy their stock back. This is great news for shareholders because these programs increase earnings per share and tend to smooth out share price fluctuations.
Shortly following the election, we began to wrap up third-quarter earnings season. As expected, the results weren’t especially pretty. Analysts expected profits to contract 2.3% and they were pretty close to the mark: a 2.2% drop. Sector-wise, Basic Materials fared the worst while the Financial sector had an unusually strong turnout. Thankfully, analysts are more optimistic looking ahead, forecasting 9.2% earnings growth this quarter and 15.1% next quarter.
Undoubtedly some of that strength will come from holiday sales, which kicked off in earnest last Friday. Online Black Friday sales topped $1 billion for the first time ever and a total of 247 million consumers hit the stores over the holiday weekend. With consumer confidence at a multi-year high, the fourth quarter is looking stronger than the third quarter.
Speaking of the third quarter, last Thursday we received the latest estimate for GDP growth. In the third quarter, the economy grew at a 2.7% annual pace. While this missed the 2.8% consensus estimate, this is the fastest pace in nearly three years.
So while November certainly had some speed bumps, as a whole the news was encouraging. There’s no doubt that December will hold its own challenges but I’m still convinced that next month will maintain its reputation as one of the seasonally strongest times of the year.