A November to Remember
by Zach Marsh on Nov 20, 2020
The month of November has sure been kind to the stock market. Coming into the month we were beset with a multitude of unanswered questions that weighed on market sentiment. Now, nearly all the uncertainty has been removed. While the weight of the virus still hangs like an anchor around our necks, the prospects for a widely available vaccine in the near future lifts the market’s spirits.
For the month, the tech-heavy Nasdaq 100 is up over 8%, the large cap S&P 500 is up over 9%, and the small cap Russell 2000 index is up a whopping 15.6%. Apart from the across the board rally in equities, the most notable event in the market has been the fact that the small cap indices are outperforming the large cap tech index by a substantial margin. All year the market has been led by the performance of technology companies that have benefited from the dramatic shifts in commerce that we’ve experienced since the shutdowns began in early March. From March to October the Nasdaq 100 gained over 72%, while the small cap Russell 2000 only managed to gain 5.3%, putting this month’s modest 7.5% outperformance margin by the Russell 2000 in better context.
Similar retracements have been witnessed recently when comparing the performance of large cap growth indices vs large cap value indices. Since the beginning of September value has outperformed growth by roughly 8.5%. Much remains to be seen if this reversal marks a dramatic shift in market leadership, but if the market hopes to continue to push higher it will need strong participations from small caps and value stocks. With p/e multiples of trillion dollar companies trading at levels typically associated with up and coming growth companies, absent broader market participation, it would be reasonable to expect a pull back in the future.
This brings us back to the beginning of this piece, another potential issue moving forward is the lack of expected positive news in the future. While it may seem counterintuitive, but with no more unanswered questions regarding vaccine efficacy (except what will most likely be a rubber stamped FDA approval) or election worries the market may be left having to face itself in the mirror without the prospects for future good news. That image is of a market that is richly valued, with high multiples the outcome of extreme Federal Reserve action and incredibly low interest rates. Typically, when the market gets what it wants it starts to look for other potential worries. I imagine those worries will begin to surface around the lack of fiscal stimulus given the prospects for a divided congress.
Thanks for reading,
Zach and Dave
All opinions are subject to change without notice. Neither the information provided, nor any opinion expressed, constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results. Tax laws are complex and subject to change. Calibrate Wealth LLC, does not provide tax or legal advice respect to the services or activities described herein except as otherwise provided in writing by Calibrate Wealth. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.
This material does not provide individually tailored investment advice. It has been prepared without
regard to the individual financial circumstances and objectives of persons who receive it. The strategies
and/or investments discussed in this material may not be suitable for all investors. Calibrate Wealth
recommends that investors independently evaluate particular investments and
strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a
particular investment or strategy will depend on an investor’s individual circumstances and objectives.
Investing in commodities entails significant risks. Commodity prices may be affected by a variety of
factors at any time, including but not limited to, (i) changes in supply and demand relationships, (ii)
governmental programs and policies, (iii) national and international political and economic events, war
and terrorist events, (iv) changes in interest and exchange rates, (v) trading activities in commodities
and related contracts, (vi) pestilence, technological change and weather, and (vii) the price volatility of a commodity. In addition, the commodities markets are subject to temporary distortions or other
disruptions due to various factors, including lack of liquidity, participation of speculators and
Foreign currencies may have significant price movements, even within the same day, and any currency
held in an account may lose value against other currencies. Foreign currency exchanges depend on the
relative values of two different currencies and are therefore subject to the risk of fluctuations caused by
a variety of economic and political factors in each of the two relevant countries, as well as global
pressures. These risks include national debt levels, trade deficits and balance of payments, domestic and
foreign interest rates and inflation, global, regional or national political and economic events, monetary
policies of governments and possible government intervention in the currency markets, or other