November 2020 witnessed incredible equity market performance. Just about every equity asset class experienced double digit returns. Some even setting records. For example, small caps (as measured by the Russell 2000) returned 18.4%!
November’s rally had many contributors that reduced overall ambiguity. (Remember, uncertainty is the market’s kryptonite.) The first was the presidential elections. Every four years, our country undergoes a potential shift in presidential political power. Our country has undertaken the challenge for almost 250 years and succeeded every time. It’s not so much the change in power as it is the anticipation of the change in power which causes market angst. Now that the elections have come and gone, the anxiety can subside.
Secondarily, and most prominent, was the parade of COVID vaccines. Pfizer started off the announcements on Nov. 9th proclaiming they were readying an application for FDA approval. One week later on Monday Nov. 16th, Moderna followed suit. Finally, AstraZeneca placed their float in the parade on Nov. 23rd. This appears to the light at the end of the tunnel. Maybe we can return to normal life some time in 2021?!?
Another contributor was third quarter earnings. Although earnings were down from a year ago (as can be expected), reported earnings generally were stronger than expected across almost all industries via breadth and magnitude. Earnings coupled with many CEO announcements of higher guidance for 2021 offered rationale for investors’ confidence.
Large U.S. stocks seemed to be garner much of the attention leading up to November. This is due to shift to eCommerce, work-from-home and reliance on technology. Abridged uncertainty and a hint that normal life may be around the corner triggered broadening market performance. The market rotation included a move to small company stocks, attention towards value stocks and industries as well as a renewed interest in international stocks. Broadening markets, as opposed to narrowly traded markets, is typically viewed as a more positive and healthy investment environment.
It is advisable not to become complacent. Strong performance has stretched valuations making stocks more sensitive to less than stellar news and subject to pullbacks. Although we have seen a break in the clouds, it is important not to lose site that the COVID storm is still overhead.