What's Behind the Massive Stock Rally: Unraveling the S&P Surge. Plus, OPEC+ Oil Output Cuts and the

Investors had a great year in 2023, and the outlook for 2024 appears even more promising, as indicated by a Bloomberg survey. 63% of respondents anticipate additional gains in their personal investments, largely influenced by the potential of rate cuts - a topic that we have covered in the last letters. AI, cybersecurity, and medicines are seen as particularly promising by investors, positioning them for significant growth in the coming decade.

Markets

In November, the S&P experienced a massive surge of $3 trillion, bringing it nearly to its all-time high. The benchmark achieved an impressive 8% climb, a feat that has happened fewer than 10 times in the same month since 1928, as revealed by Bloomberg's compiled data. Simultaneously, the MSCI All-Country World Index demonstrated remarkable growth, rising by 9% throughout November, marking its most successful month since November 2020.

Mohamed A. El-Erian identifies four factors contributing to this market rally in his opinion piece. First, positive economic data including jobs and inflation strengthens the case for a soft landing. Second, declining Treasury yields reduce borrowing costs across households, companies, and government entities. Third, falling oil prices contribute to a favorable economic environment. Lastly, there is a surge in the deployment of cash that was previously on the sidelines. However, El-Erian cautions against extrapolating the November rally further, arguing that this alignment of risk factors is unlikely to persist.

The surge in the S&P throughout November, and indeed year-to-date, can be primarily attributed to the dominant influence of the Magnificent 7 - Apple, Amazon.com, Alphabet, Facebook, Microsoft, Nvidia, and Tesla. A chart from Apollo Group's Torsten Slok offers a visual comparison, comparing the "M7" index against an S&P 493 that encompasses all other constituents. The chart illustrates a disparity, underscoring the outsized impact these companies have on the overall performance of the S&P.

Source: Torsten Slok

Crypto

Bitcoin reached a 2023 high, surpassing $42,000 on Monday, marking an 8.2% increase from the previous day and surging by over a fifth in the past month. The market was initially concerned about potential actions by US authorities against Binance, especially after the platform paid $4.3 billion in penalties and pleaded guilty to sanction breaches and other malpractices. However, as these fears did not materialize, Bitcoin experienced a significant surge.

Commodities

Brent Crude Slips Below $78 Amidst a Six-Week Losing Streak. Recent pledges by OPEC+ to stabilize crude prices through oil-output cuts seem to have fallen short of expectations. The effectiveness of these cut pledges, scheduled for January, is questioned, possibly due to their voluntary nature. Goldman Sachs attributes the current dip to a temporary response to substantial increases in inventories and a growing supply. Despite the prevailing downturn, the forecast for Brent stands firm at $93 a barrel in December 2024.

Copper held near the highest level in over 10 weeks, influenced by concerns about a potential shutdown of a major mine in Panama. Meanwhile, European natural gas options indicate increased confidence in the region comfortably navigating the winter season. Traders are offering a lower premium for options benefiting from a price rally compared to those positioned for a decline.

Corporate news

Vladimir Putin has ordered the seizure of St. Petersburg's Pulkovo airport from foreign shareholders. Foreign investors, including Fraport and the Qatari wealth fund, are required to transfer their stakes to a newly established Russian entity.

Adobe is reportedly working on a proposal to address concerns raised by European competition regulators regarding its $20 billion acquisition of Figma.

Origin Energy has rejected a $12.6 billion takeover proposal from Brookfield for the acquisition of its main energy business.

Deutsche Lufthansa has decided to postpone the planned sale of a minority stake in its maintenance and repair subsidiary, which had attracted interest from several private equity bidders.

The Dutch government is planning to sell shares worth around €1 billion in ABN Amro, intending to lower its stake from 49.5% to about 40%.

ESG

The UAE has unveiled a $30 billion investment fund at COP28, held in Dubai. Lunate Capital, an Abu Dhabi-based asset manager, will oversee the fund, which is set to be launched in collaboration with global investment giants BlackRock, TPG, and Brookfield.

At the same event Exxon and Aramco led a pledge by 50 oil and gas producers to cut emissions from their own operations.

Last week, Charles Munger of Berkshire Hathaway passed away. Under their leadership with Warren Buffett, Berkshire achieved an annual return of 20.1% from 1965 through 2021, nearly double the performance of the S&P 500. Warren Buffett, in expressing his condolences, acknowledged Munger's significance, stating, 'Berkshire Hathaway could not have been built to its present status without Charlie’s inspiration, wisdom, and participation'.