Market Monitor: November Mid-Month Update
Headlines and Highlights
- Vaccine optimism rises alongside COVID-19 surge: Hopes for curbing the spread of the coronavirus received a big lift with announcements by Pfizer/BioNTech and Moderna touting the development of apparently effective new vaccines. Widespread availability of both drugs remains months away, however. The encouraging news came even as the number of new cases and deaths from COVID-19 spiked worldwide. Some cities and states imposed tighter restrictions as U.S. deaths topped 246,000 and 1.1 million cases were reported in the past week.
- Economy’s rebound reflected in employment gains: Initial applications for unemployment benefits, an important economic indicator, fell sharply as the recovery remained on solid footing into November. Weekly jobless claims fell to 709,000 – still above the pre-pandemic level of about 200,000 but far below the peak of 7 million in a sign that layoffs are easing.
- Markets spiral higher in November; value stocks on a comeback: Global markets rose sharply in response to the vaccine breakthroughs, with the S&P 500 and other indexes reaching new highs. Value stocks have outperformed their growth counterparts by 5 percentage points this month and added 9.3% since August while the growth index has gone sideways (0.0%). Value or cyclical stocks benefited from a brightening economic outlook, including the vaccines, and from U.S. election results that produced a narrowly split Senate. Although value has performed well recently, it is still far behind growth for the year.
Chart of Interest
Comeback: While still 1% negative for 2020, value stocks have outperformed growth stocks since August – accelerating after the election and vaccine announcements.
Sources: Morningstar, Altair Advisers
- The stock market as measured by the Standard & Poor’s 500 Index had its best-ever 10-day return (6.4%) following a presidential election in data going back to 1928. The second-best was the 6.3% advance following Ronald Reagan’s 1980 victory over Jimmy Carter.
- Stay-at-home advisories and other restrictions being imposed amid widening COVID-19 outbreaks are likely to further hamper certain sectors of the economy and partially offset investors’ initial enthusiasm about vaccines. However, a return to a national lockdown remains unlikely, according to the incoming Biden administration, and the Federal Reserve still forecasts GDP to grow at about a 3% annual pace this quarter.
- Corporate earnings for S&P 500 companies were down 7.1% year-over-year in the third quarter and revenue was down 1.6%, according to FactSet. Those results were significantly better than analysts expected in the midst of a pandemic, however, and showed improvement from the prior quarter.
- Smaller companies’ stocks as gauged by the Russell 2000 Index returned to record territory for the first time since August 2018 last Friday. Small caps, up 5.7% for the year at mid-month compared with 12.8% for the large-cap S&P 500, typically perform better when investors feel encouraged by economic developments to take more risk.
- The VIX, a measure of the stock market’s expectation of volatility based on S&P 500 options, has declined to nearly its lowest level since March after U.S. elections produced less turmoil than many investors feared. The gauge – formally the Chicago Board Options Exchange’s Volatility Index – is back at its historical average of about 22 after spiking to a record above 82 in March.
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