November Market Recap
December 1, 2020
So much for all the concern that a contested election would harm the stock market. Despite a change in Presidential leadership and the legal disputes that followed, US stocks just completed their best single month in 33 years!
Each of the three major indices gained more than 10% in November, shrugging off unfounded claims of election fraud and a steady rise in COVID-19 cases. The Dow Jones Industrial Average surpassed 30,000 for the first time. The NASDAQ again topped 12,000. Both of them, along with the S&P 500, finished the month near all-time highs.
While November began with our country’s focus squarely on the election, it ended with a wave of positive momentum created by encouraging vaccine developments. The market after all is relentlessly forward-looking, and a finish line finally appears in sight in the race to cure COVID.
All 11 sectors in the S&P 500 booked gains in November. Energy (+28%) and Financials (+16.9%) finally enjoyed a month in the sun, although they remain the two worst-performing sectors year-to-date. Industrials (+16%) were also among the best performers. Utilities (+0.7%) and Real Estate (+7%) were the relative laggards.
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The other race — the one for the White House — ended with Joe Biden unseating Donald Trump, although the historically high number of mail-in ballots did result in the outcome being delayed a few days longer than usual. Significantly, Republicans appear likely to maintain a narrow majority in the Senate, although that will remain uncertain until the conclusion of two Senate runoff elections in Georgia on January 5.
As they often do, financial markets surged in the days following the election. The S&P popped more than 5% in the four trading days immediately after Election Day. Consider it an endorsement of the probability that political power in Washington will remain split. Should Democrats pull an unlikely upset in the Georgia runoffs and turn the Senate blue as well, that could lead markets to recalibrate.
The political theater suddenly feels like a sideshow, however, after news that multiple vaccines blew away medical expectations in their most recent clinical trials. Biotech company Moderna’s vaccine had a 94% efficacy rate in a trial involving 30,000 people. Only 11 people who received two doses of the vaccine developed COVID-19 symptoms compared to 185 people in the placebo group.
The Moderna vaccine was also 100% effective at eliminating “severe disease.” The company has already applied for emergency use authorization from the US Food and Drug Administration. Pfizer and BioNTech are other companies that have developed comparable vaccines and reported similarly impressive results.
Stocks got an extra jolt the week of Thanksgiving when the Trump administration begrudgingly began the peaceful transition of power toward a Biden presidency. On the same day, Biden named former Federal Reserve Chair Janet Yellen as his presumptive US Treasury Secretary.
Third-quarter earnings season concluded with S&P 500 earnings declining 6% cumulatively from a year earlier. Three industries in particular — Oil & Gas, Airlines, and Hotels/Restaurants — dragged down the overall number. Excluding those three components of the US economy, S&P 500 earnings grew more than 4% year-over-year.
As vaccine progress spurred hopes of a more broad-based economic recovery, several categories that have lagged year-to-date outperformed in November. Small-cap stocks exploded higher with the Russell 2000 index gaining 18.3%. Non-US Developed equities rose 14.3%. Emerging Markets equities increased only 9%.
Official numbers reported by the US Commerce Department confirmed that American GDP grew at an annualized pace of 33.1% in the third quarter. Consensus growth estimates for the fourth quarter, however, are below 5% annualized. Economic forecasts for the first quarter of 2021, meanwhile, have been revised lower following the latest spike in COVID-19 cases and another round of mitigation measures.
Interest rates have remained stubbornly steady, a modest surprise given that a sharp increase in stock prices would typically send rates higher as well. The 10-year US Treasury bond finished November yielding 0.84%, two basis points lower than a month earlier (0.86%).
Unemployment claims rose in each of the last two weeks, the first instance of back-to-back weekly increases since July. It’s a sign the recovery in the US labor market is slowing and remains vulnerable.
Oil prices climbed every week in November and rose to their highest level in eight months. West Texas Intermediate Crude finished the month trading just above $45 per barrel.
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The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
MSCI EAFE Index consists of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
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