- Global stock markets are heading towards their biggest monthly gains since the late 1980s.
- Optimism about the new coronavirus vaccine has triggered a shift in funding from growth stocks to previously suppressed value stocks.
- The optimism that permeates the stock market has no trace in the bond market.
Risky assets ended their best-performing month in history, although it ended somewhat staggering. The stock market fell on Monday, but the sell-off did not affect the historical growth of this glorious November. Small stocks had their biggest gains. Bitcoin also hit a record high.
Energy stocks are expected to perform their best monthly performance yet. By contrast, gold prices have fallen the most in four years.
In the past month, for four consecutive Mondays, a drug manufacturer reported the latest developments in vaccine trials, triggering fierce stock market rotation buying, and stocks that benefited the most from economic growth received strong buys.
The uncontroversial results of the US general election, and the reiteration of central banks to maintain loose monetary policies, have also injected benefits into the market. JJ Kinahan, chief market strategist at TD Ameritrade, said:
“What’s really taken most people by surprise is that if anybody said to you in March, ‘Hey we’re going to have a year where really most businesses are working at not-full capacity, most restaurants may not even be open, people aren’t going to the office, and oh yeah, by the way, we’ll hit all-time highs,’ people would have thought you were nuts,”
He added, “it’s been amazing.”
Global Stock markets Soar
Global stock markets are heading towards their biggest monthly gains since the late 1980s, with the S&P 500, Nasdaq Composite and Dow Jones Industrial Average continuing to break historical highs. The ETF that tracks the US stock market attracted $77 billion in funds in November, setting a record high.
Small but Powerful
Boosted by expectations of a strong economic rebound, small-cap stocks finally won their fans. The Russell 2000 Index rose by about 18% in November, the biggest month of increase in history. Small-cap ETFs attracted $8 billion in new funding, the highest level since 2016.
The cyclical sector grabbed the limelight of technology stocks and climbed higher. The energy component stocks in the benchmark index are expected to have their biggest monthly gains on record, while the stock prices of industrial and financial companies have their highest gains since 2009.
The Spring of Value Stocks
Optimism about the new coronavirus vaccine has triggered a shift in funding from growth stocks to previously suppressed value stocks. The Russell 1000 value stock index has risen nearly 14% since November, and is expected to set its best month on record.
Growth stocks rose about 9%, but the gap with value stocks was the largest since the early 2000s. At the same time, ETFs that track value stocks have attracted the largest amount of funds since at least 2013.
“We will begin to see more flows to value stocks if it looks like an economic recovery is really taking hold, and that is very possible,” said Matt Forester, chief investment officer of BNY Mellon’s Lockwood Advisors. “And of course, the stocks have really big discounts to the growth stocks.”
With the strengthening of expectations for the economic restart, Facebook, Amazon, Apple, Microsoft and Google’s parent company Alphabet, the “home concept stocks,” have slowed their gains.
The stocks of the aforementioned tech giants rose 7% in November, about one-third of the 18% increase in the Russell 2000 Index.
U.S. Treasuries are Quiet
The optimism that permeates the stock market has no trace in the bond market. Despite the surge in risk assets, expectations of further action by the Fed under the raging new coronavirus epidemic still promoted a quiet rebound in long-term government bonds.
The benchmark 10-year Treasury bond yield fell by about 2.8 basis points in November, and the yield gap between 2-year and 10-year bonds narrowed to the highest monthly level.