Encouraging data points in the fight against inflation during November prompted a flurry of investor confidence that interest rates have peaked. Sentiment toward stocks and bonds swung from dire to bullish, and capital markets rallied to end a three-month losing streak. Despite popular enthusiasm that sent longer term interest rates lower, Fed members themselves continue to voice that talk of cuts is premature.

Stock performance

Small cap stocks had a wild month. The Russell 2000 small cap index finished up over 9%, roughly matching the broader market. What was interesting was that all the gains could be attributed to just three big up days, which corresponded with declines in interest rates. This suggests small cap stocks may rally if rate cuts do come to fruition. On the opposite side, the so-called “Magnificent Seven” mega-cap tech stocks generally outperformed for the month after posting more mixed results during earnings season earlier in the quarter.

International relations

Chinese President Xi Jinping met with U.S. President Joe Biden in San Francisco during the month. While there were no major breakthroughs, the two did manage a cooperative tone and there may be some thawing in relations which could lead to increased trade. Investors remain wary of China’s increasingly heavy-handed policies, however, and the MSCI China index is down for the year. More recently, Moody’s downgraded China’s credit outlook to negative.

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