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November 2020 Market Commentary: A K-Shaped Recovery

Data Source: Bloomberg

To read full market commentary, click here.

November 2020 Highlights:

  • Following the mild pullback in October, global equities rallied after the U.S. November elections that largely resulted in ‘gridlock’ lowering prospects of major legislative and regulatory initiatives. The advance accelerated following promising late stage human trial results from several COVID-19 vaccine developers.
  • Global stocks, as represented by the MSCI All-Country World Index (ACWI), rose 12.3%. MSCI Europe rose 17% followed by MSCI Japan (up 12.5%).  The S&P 500 returned 10.9% while MSCI Emerging Markets and Pacific ex Japan trailed the other regions, returning 9.2% and 9.1%, respectively.
  • Much of the early advance was led by the ‘deflationary’ trade of premium technology growth stocks and long maturity Treasuries. However, following leaked human trial data on a COVID-19 vaccine being developed by Pfizer showing 90%+ efficacy, there was a massive rotation into ‘global reflation’ consisting of value stocks, traditional and beaten-up cyclicals, and industrial commodities.
  • This rotation continued as additional promising results were released from Moderna and Astra-Zeneca, with U.S. and European regulatory officials strongly indicating a vaccine rollout as early as mid-December.
  • This month saw a major rotation into value stocks and small cap stocks following the vaccine efficacy announcements although the last week of the month saw some of this trade revert to large cap growth. The S&P Pure Value returned 18.9% versus 12.2% for Pure Growth, both outperforming the S&P 500 due to the outperformance of small versus large.  Small caps (S&P 600) outperformed large caps (S&P 500), returning 18.2% versus 10.9%, respectively.
  • Traditional cyclical and beaten up sectors such as Energy, Financials and Industrials outperformed more defensive sectors (Healthcare, Staples, Utilities and Real Estate), which lagged partly due to the sharp rotation into cyclical risk.
  • Among factors, Value outperformed other major factors which themselves marginally underperformed the S&P 500.
  • Despite a sharp spike in long-term interest rates following the vaccine news, the U.S. Bloomberg/Barclays Aggregate Index returned 1% for the month helped by the continued rally in corporate and mortgage-backed debt sectors. The 10-Year US Treasury rose as high as 0.97% after the vaccine news before settling down to 0.86% as an acceleration in 2nd wave infections dampened the vaccine celebratory sentiment.
  • S. high yield rallied alongside equities as high yield spreads continued to narrow towards their pre-COVID levels. The Bloomberg Barclays High Yield Index returned 4% for the month while emerging market and non-U.S. fixed income also had positive returns, benefiting from a weaker U.S. dollar.
  • Commodities performed in line with global equities even though oil prices continue to lag the broader advances seen across industrial metals (primarily copper) and agriculture. S. REITs posted positive returns but underperformed global equities likely due to a combination of higher interest rates and preference for high volatility assets.  GSCI Commodities returned 12% although GSCI Precious Metals suffered a 5.5% decline as investors tempered expectations over a major fiscal stimulus plan following the November elections.
  • After trading between $30 to $40/barrel for the last several months, oil prices (3-month futures) broke through key resistant levels ending at $45/month even though there are growing signs of disagreement among OPEC+ nations on how long to cap production in the face of rising energy demand.

To read full market commentary, click here.

By: Benjamin Lavine