Stocks just had their best month of 2023. Here’s what drove the November rally.

• Christmas came early for the stock market in November.

• The S&P 500 climbed 9% and is trading close to its highs for 2023.

• Investors’ belief that the Fed is done raising interest rates has powered the benchmark index higher.

Stocks traded mixed Thursday, but that was still enough to lock in the best month of an already-stellar 2023.

In a November that will have traders counting their blessings, the benchmark S&P 500 rose 9%, and is now trading just 20 points shy of the high for the year set on July 31.

Meanwhile, the tech-heavy Nasdaq Composite surged 11% and the Dow Jones Industrial Average climbed 2,900 points higher.

Software giant Salesforce and travel tech firm Expedia were two names that racked up outsized gains. It was also another good month for the so-called “Magnificent Seven” group of Big Tech stocks, which have already added trillions of dollars worth of market cap this year. Microsoft and chipmaker Nvidia both hit record highs toward the end of the month.

The Sam Altman-OpenAI psychodrama and the death of investing legend Charlie Munger dominated headlines, but November also served as a reminder that on Wall Street, inflation and the Federal Reserve are still in the driving seat.

By far the most important news story of the month for investors was the Consumer Price Index print released on November 14, which showed inflation rising by a lower-than-expected 3.2% in October.

That sparked a flurry of bets that the Fed is done tightening. The majority of traders believe the central bank has lifted interest rates for the final time this cycle, according to the CME Group’s Fedwatch tool, with eyes now turning to potential mid-2024 rate cuts.

If that forecast plays out, there’s a good chance policymakers will be able to achieve their dream “soft landing” outcome, even though they hiked borrowing costs from near-zero to about 5.5% in the space of just 15 months.

Growth has remained strong, and the unemployment rate is still hovering below 4% even as inflation has rapidly cooled.

All that good news helped power the S&P 500 to its second-best November since 1980, according to data from Bloomberg. The only time the gauge performed better in the 11th month of the year was when it enjoyed a post-pandemic recovery in 2020, per the outlet.

Festive cheer

All that means Christmas has come early for the market – in a month that put the cherry on top of a stellar year in which stocks have defied Wall Street’s gloomy predictions to rack up stellar gains.

If that’s not enough festive cheer, big banks responded to the end-of-year rally by bombarding investors with cheery outlooks for next year.

Bank of America’s Savita Subramanian said last week that she’s expecting the S&P 500 to climb 10% to hit a record 5,000 points by the end of the year, while BMO’s Brian Belski and Deutsche Bank’s Binky Chadha have each set 5,100-point price targets.

Some outliers are more skeptical, though. JPMorgan Asset Management is telling investors to stay cautious with a recession still on the table, and Société Générale warning them to prepare for a choppy 2024 that will see the gauge trade close to its record high, slump – and then rally again.

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