November 2020 Monthly Market Review
Risk assets rallied in November, with the S&P 500 reaching all-time highs and the Dow Jones Industrial Average piercing the 30,000 level for the first time in its history. Several different pharmaceutical and biotech companies announced positive results from COVID-19 vaccine trials, which helped stoke optimism. After failing to secure the Democratic nomination in 1988 and 2008, Joseph Biden became President-elect, securing more than 80 million votes—the most ever by a U.S. President. With Biden’s victory, Sen. Kamala Harris became the first woman, first black woman, and first woman of Asian descent to ascend to the vice presidency. However, the “blue wave” many predicted did not materialize and the Democrats will hold a smaller majority in the House. Which party controls the Senate is still unclear as the nation awaits the results of two Senatorial runoff elections in Georgia set to take place in January. The lack of a blue wave caused Treasury rates to hold steady as the fears over heavy spending on progressive measures dissipated. Nonetheless, risk assets responded favorably.
U.S. equities posted strong performance in November, with the S&P 500 gaining 10.9% and reaching an all-time high. Small caps generated even greater gains, with the Russell 2000 Index registering its best month ever at 18.4%.
The reopening of the economy was a dominant theme as the energy sector (+27.9%) vastly outperformed other sectors. Roughly half of these gains occurred on November 9th, when Pfizer and BioNTech released the surprising efficacy data for their coronavirus vaccine. Industrials (+17.1%) was the second best performing sector, led by airline and aerospace stocks; Boeing (+45.9%) was a standout contributor. Financials (+16.2%) was another area of strength, led by banks Citigroup (+33.0%) and Wells Fargo (+28.1%). Defensive utilities (+1.9%) and consumer staples (+7.8%) were the two worst performing sectors, struggling to keep up with the broad market in a risk-on environment.
The strength in financials, industrials, and energy helped propel value stocks ahead of their growth counterparts, with the Russell 3000 Value Index (+13.8%) outpacing the Russell 3000 Growth (+10.7%). Value outperformed growth for the third consecutive month in November.
Developed non-U.S. equity markets rose 15.5%, exceeding their U.S. counterparts and posting their best monthly return in 30 years. Currency movements served as an additional tailwind, as the pound (+3.3%), euro (+2.7%), and yen (+0.3%) were among the many currencies to advance on the USD. Value stocks enjoyed the strongest rebound, gaining 18.9% and besting growth (+12.3%) for just the third month of 2020. Positive developments in COVID-19 vaccines provided optimism for the global economy and relief to areas of the market that faced the most significant headwinds during the pandemic. Energy (+35.5%) led all sectors, while aerospace (+39.1%), airlines (+25.3%), hotels/leisure (+19.8%), and banks (+25.9%) stood out among industries. Non-U.S. equity managers with exposure to these deeper value, more economically sensitive segments saw the biggest benefit from the sharp reversal in market leadership.
Emerging markets (EM) exhibited similar market dynamics, gaining 9.2%, with value (+12.8%) outperforming growth (+6.3%), led by cyclical sectors such as energy (+16.2%) and materials (+15.6%). Concentration in large Chinese internet and e-commerce companies among EM countries weighed on broader market results. Alibaba and Tencent, which combined account for roughly 15% of the MSCI EM Index, fell 13.6% and 4.7%, respectively. In addition to the reversal in style leadership, these companies fell on growing regulatory pressure domestically. Alibaba was hurt further by the delay of the Ant Group IPO, in which it holds a minority stake.
Optimism in equity markets also positively impacted fixed income markets, particularly credit-oriented sectors. Credit spreads narrowed, leading to a 2.8% gain in investment-grade corporates and a 4.0% return in high yield bonds. Interest rates were largely unchanged except at the long-end of the yield curve, which experienced a decline in rates. Intermediate-term Treasuries gained a modest 0.3% and lagged the 1.2% gain in long-term U.S. Treasuries. Breakeven inflation expectations widened as a result of steady Treasury yields and a decline in the real yields on TIPS. As a result, TIPS outperformed their nominal Treasury counterparts across the full-term structure of interest rates.
REITs rallied sharply (+13.2%) on positive vaccine news rather than from changes in interest rates. Traditional real estate sectors, which have been most impacted by COVID-19, sharply outperformed “new economy” sectors. Lodging (+46.6%), shopping centers (+35.4%), traditional office (+25.1%), and traditional apartments (+16.4%) led the advance. In contrast, sectors that already had strong secular tailwinds and benefited from the pandemic underperformed, notably data centers, self-storage, and industrial.
Elsewhere in real assets, positive vaccine news sparked a rally in Brent crude (+26.5%), which closed the month at $47 per barrel—the highest level since March 2020. Prices also benefited from expectations that OPEC+ will extend existing production for an additional quarter, a decline in domestic inventories, and weakness in the U.S. dollar. To end the month, money managers and hedge funds held the most bullish positioning on crude in over three and half a months. Resource equities and master limited partnerships also advanced sharply, returning +17.0% and 23.5%, respectively. Global demand recovered to approximately 90 million barrels a day from a low of 75 million barrels in April. A significant increase in global air travel is likely necessary for global crude demand to fully recover and return to pre-COVID levels of approximately 100 million barrels a day.