Stocks had a very strong November, as the S&P 500 returned 2.7% for the month. In our view, global policy actions helped drive these gains. It appears more likely that the European Central Bank (ECB) will eventually embark on a sovereign debt purchase program. This should greatly strengthen the credibility of the bank’s guidance towards a reflation of its balance sheet to early 2012 levels. In addition, the European Commission accepted the budgets of France and Italy despite higher deficits, signaling that it will not strictly enforce austerity measures in light of the currently challenged economic environment. Meanwhile, the People’s Bank of China cut interest rates for the first time since 2012 in an attempt to encourage lending and thereby stimulate the economy. In Japan, fiscal policy took center stage, as Prime Minister Abe responded to a very weak third quarter GDP reading by delaying a second planned consumption tax increase.
Oil prices continued their decline during the month, and late in November OPEC held a much anticipated meeting which resulted in no reduction of its production quota. This demonstrates that OPEC, primarily Saudi Arabia, is likely to compete with non-OPEC oil producers for market share rather than curtail supply to support oil prices. Global oil markets reacted to this news swiftly, and U.S. benchmark West Texas Intermediate crude declined 10% the following day. We continue to expect U.S. consumer stocks to benefit from the decline in oil, as we believe the majority of personal income that would have been spent on gasoline is likely to be diverted to more discretionary items.
We remain encouraged by the improving economic growth trajectory of the U.S. Third quarter GDP was revised upwards to growth of 3.9%, from a preliminary reading of 3.5%. This, along with second quarter growth which came in at 4.6%, made for the best six month stretch of economic output since 2003. The labor market continues to display positive signals as well. While job additions of 214,000 in October missed consensus expectations for 233,000, the unemployment rate declined to 5.8%. A broader measure of unemployment, which includes those who have given up looking for work as well as those who are in part-time positions but seek full time employment, fell to 11.5%, its lowest reading since 2008. Moreover, with upward revisions to prior months’ job gains, the U.S. has now added over 200,000 positions for nine consecutive months, marking a record for the economy.
The labor market continues to improve, as the pace of job creation accelerates while unemployment slowly declines, consumer sentiment is at post-recession highs, and monthly credit card balances are beginning to grow again after several years of stagnation. As a result, we expect overall U.S. consumer spending to be healthy this holiday season. In response to this improved outlook, we increased our consumer holdings and continued to pare back on our energy exposure during the month.
We believe the recent decline in gasoline prices is likely to have a similar impact on the U.S. consumer as a tax cut, in addition to providing a benefit to many enterprises which consume fuel as a meaningful part of their cost structure, such as airlines. We anticipate the current price level of crude oil may persist in the intermediate term until either the Saudis have achieved their goals in terms of market share gains and unprofitable oil producers curtail production, or OPEC members relent and agree to reduce supply to the global market.
We continue to hold a relatively positive view on the market. The domestic economy has grown in excess of 3% in four of the past five quarters, giving credibility to the notion that we may finally be exiting the period of subpar expansion that has characterized the aftermath of the financial crisis. The corporate sector has posted solid profits, with third quarter earnings increasing by more than 8% compared with the prior year, well ahead of expectations. With lower energy prices to boost consumer spirits, this in turn could further enhance corporate profitability and economic output. Lastly, in aggregate, global central banks remain highly accommodative. While the Federal Reserve may begin to raise interest rates at some point next year, central banks in China, Japan, and Europe have all recently taken significant easing actions, and we believe more may very well be in store.
Risks that we continue to monitor include sluggishness in key international markets. While we believe central bank actions will be beneficial for capital markets, it is important to bear in mind that these measures are being taken due to weak or weakening economies. Europe in particular is having trouble gaining any momentum, as evidenced by its third quarter GDP which grew only 0.2% on a seasonally adjusted basis.
Furthermore, the sharp decline in oil prices, while a net positive to the U.S. economy, also carries with it certain dangers. It is conceivable that certain countries which are highly dependent on oil export revenues could face pressures to meet their debt obligations, and any potential sovereign defaults could ripple across global capital markets. We also note the risks to the U.S. credit markets, as energy represents the largest sector of high yield debt. Finally, the eventual inflection of U.S. monetary policy is a possible source of volatility as we look towards next year. While we believe that the Fed will make every attempt to move in a slow and steady fashion so as to minimize possible disruptions to capital markets, we note that the current lack of liquidity in fixed income markets could lead to outsized moves in long-term rates, which we believe could negatively impact stock prices as well.
As always, we continue to scour the investment landscape for potential opportunities that we believe will enable us to preserve capital and build wealth over time.
This information is intended solely to report on investment strategies and opportunities identified by Roosevelt. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Please contact us at 646-452-6700 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions, or if you would like to request a copy of our Code of Ethics. Our current disclosure statement is set forth on our Form ADV Part II, available for your review upon request, and on our website, www.rooseveltinvestments.com.