November Mid-Month Update

By Ryan Gilmer, CFA, CMT Chief Investment Officer

November 16, 2020

We hope you are doing well. Here is a recap of market performance for the month of November so far, and year-to-date:

For the month, stocks are significantly higher, with US small cap and international stocks up double digits. US large caps are also firmly positive, while bonds are slightly up. For calendar year 2020, the S&P 500 remains the leader, and bonds are second best.

The recent election was, momentarily, the most influential event impacting financial markets. The following chart visually shows the level of the S&P 500 since late July.

Following election day, the S&P 500 has rallied significantly. Why has this happened?

  • Context matters – since the end of July, the market has traded in a range between 3200 and 3600. During the latter half of October, stocks went down almost 9% to end the month. The market began rallying the Monday before the election, and rallied on election day, well before results were evident. Markets don’t go straight up or straight down, so given the swift October correction, a market rebound was expected.
  • Results are mixed – While Democrats are pleased with Biden’s imminent presidential victory, the “Blue Wave” they were hoping for never materialized. Republicans gained seats in the House of Representatives, which was unexpected, and maintain 50 senators, while Democrats have 48. Two Senate seats in Georgia will be determined in a runoff election in January. Even if Democrats win both seats, which is unlikely, it will be difficult for them to pass sweeping reforms. In other words, our elected officials will have to work together to pass legislation, rather than ramming through bills on party lines. Markets will likely view this “gridlock” as a very good thing.
  • Now we can move on – once an anticipated event concludes, markets move on to the next thing pretty quickly.

So, where do we go from here?

Now that we know, in large part, the election results, markets will refocus on the health of the economy, which received a shot in the arm (pun intended) from Pfizer. On Monday, November 9th, they announced Phase 3 study results showing their vaccine to be 90% effective. While the clinical trials will continue, markets viewed this news as quite positive, especially stocks in economically sensitive industries like travel, leisure, and energy. This morning, Moderna announced similar news regarding their vaccine, which shows 94% efficacy in its Phase 3 study results.

While it will take time to distribute these vaccines, this news provides hope for a continued economic recovery, and hopefully a return to more normal activity in the first half of 2021. Please reach out to your advisor if you would like to discuss this topic or your accounts in further detail.

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