Everything is Different Now. Or is it?
2020 seemed to turn the world upside down, with November being no different. The month kicked off with an election and the hope of some clarity, yet that still isn’t entirely resolved. Fortunately, we do not live in Georgia as the record-breaking advertising campaigns continue to bombard the residents as they face the upcoming run-off election. From there, a surge in coronavirus positivity rates created further uncertainty and fear, particularly around the upcoming holiday season. Economic data reflected individual concerns, as the Conference Board’s Consumer Confidence Index fell to a lower-than-expected 96.1, and household income began to weaken from previous increases. Along with this, initial unemployment reversed a downward trend and began to see consecutive weeks of increased unemployment...
Did investors hunker down and turn the risk switch firmly to the “off” position? Nope. The outcome of the election, with a divided Congress, was seen as good news. Markets don’t like uncertainty, and this outcome seems to promise the status quo with some positive signals around the edges. With the news of multiple coronavirus vaccines likely being deployed before the end of the year, and full rollouts over the next several months, November delivered “all gas, no brake” for the markets.
All three major U.S. stock indexes had a knockout month: The S&P 500 rose 10.75%, The Dow Jones Industrial Average notched 11.84%, the biggest monthly hop since 1987, and it breached 30,000 for the first time. The Nasdaq Composite gained 11.8%
Breaking down the rally, investors appeared to be aligning with a longer-term view of economic recovery. Cyclical stocks were rotated in favor as investors looked towards the next stage of the economy. Investors shifted away from the big tech stocks that drove the market recovery earlier this year and favored value stocks over growth stocks in the recent weeks.
The month-long rally was broad-based, as the stocks of companies that have been left behind in our new pandemic-focused world came back into favor, with smaller-cap stocks also participating with record-breaking gains.
Fixed income assets, such as investment-grade corporates, performed well past the first half of the month, particularly on the longer end of the duration spectrum. For the week of November 20th, investment-grade corporates outperformed all other fixed-income sectors. The following week, the bond markets were fully participating in the risk-on sentiment, and high yield was the star performer – making it the best performer for the month.
Treasury market yields were mostly flat, with the ten-year note taking an interesting trip as investors moved out of so called "safe-haven" assets – and then back into them at the end of the month- making the ten-year yield jump more than ten basis points before settling back where it started.
The post-election November resulted in a light month for municipal new issuance, but low-interest rates continue to be supportive. Even with a slow month, the municipal inventory is gaining traction. Taxable municipals doubled the issuance rate compared to last year.
At month-end, stocks declined slightly as the reality that COVID isn’t disappearing right away settled in. Some surprises in the data, such as a decline in pending home sales, reminded investors we have several tough months to go, and conditions are still deteriorating. Stimulus talks have recommenced, yet it is still uncertain if Congress can pass a package before year end. if they can act quickly, the package will likely be a lot smaller than what many had hoped.
What Should Investors Do?
There is definitely rationale for a positive outlook – but there is also a big gap to get over before the actual economy catches up to the forward-looking stock markets. Until then, the markets may be vulnerable to setbacks and bad news, which can create volatility.
It’s December; as we prepare to say farewell to 2020, we recommend taking stock of where you are in your planning, if your goals have changed, or if any part of your situation has changed, they may warrant a change to your investments. Beyond your planning, this is an excellent time to consider rebalancing and tax-loss harvest opportunities. Ensuring that you plan for the things you have under your control is the most important part of a healthy financial strategy.
This material is provided as a courtesy and for educational purposes only. All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average (DJIA) is a price-weighted index of 30 actively traded blue chip stocks. The Nasdaq Composite Index is the market capitalization-weighted index of over 2,500 common equities listed on the Nasdaq stock exchange. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index.