November Market Overview
November proved a remarkable month for equity investors, as most major indexes produced double-digit returns for the month! The robust returns drove many indexes into positive territory for the YTD period, a truly remarkable feat amid a global pandemic that has wreaked so much economic havoc across the world.
While there were several positive developments throughout the month that helped fuel the market’s rally, the unequivocally tremendous news surrounding the COVID-19 vaccines dwarfed everything else. In fact, we view the vaccine news as the most significantly positive news for the global economy over the course of at least the last decade. The most stunning aspect of the news was the extremely high efficacy – nearly 95% for both Pfizer’s and Moderna’s vaccines – which was much greater than investors anticipated, and which promises to help curtail the virus and allow for a swifter economic recovery than investors had previously contemplated.
The newfound optimism on the economic outlook immediately sparked a dramatic shift in investors’ appetites for Value and Small Caps, both of which had lagged considerably over the course of the year as pandemic-related challenges weighed most heavily on smaller and lower-growth value companies. The change in sentiment around these styles drove Large-Cap Value to outperform Large-Cap Growth by more than 3% (Russell 1000 Value +13.5% vs. Russell 1000 Growth +10.2% in November). In fact, the Russell 1000 Value Index posted the second highest monthly performance since the inception of the Index in December 1978. Even more impressive was the staggering return of Small Caps, with the Russell 2000 gaining 18.4% for the month – a new monthly record also dating to December 1978.
In Fixed Income, while yields initially notched higher on the favorable vaccine data, that response was short lived, as yields were essentially unchanged across the curve by the end of the month. Fixed Income returns, however, were positive across the board for the month.
While we do not want to diminish the favorable news surrounding the vaccines against COVID-19, we are also cognizant that it will take time for them to become widely available, and, in the meantime, new infections are rising at a staggering pace. The rapid escalation in new cases is concerning given the ensuing detrimental impacts to consumers and businesses across the world as municipalities contemplate a new wave of shutdowns.
Naturally, we welcome the strong returns in stocks, though we must recognize that stocks rallied in anticipation of improved fundamental results in the future. Therefore, investors are already paying for an economic rebound, so at least some of the future good news is already contemplated in current prices. In other words, progress in getting the global population inoculated and/or an economic recovery next year does not necessarily translate into a continued market rally.
The pandemic has brought about some remarkable changes and uncertainty this year, accompanied by a dramatic selloff in stocks in March, only to be followed by a near relentless rally culminating in some record-breaking results in November. While the selloff in March was panic-driven and November’s rally has been dubbed by some as euphoric, our investment approach continues to be based on a disciplined process rather than emotion, and we maintain a balanced to somewhat cautious outlook as we move into the new year.
The monthly Market Overview is written by two members of MACRO’s Investment Committee, Mark Cortazzo, CFP®, CIMA®, and Christopher Moffett, CFA.
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