November saw a rise in market sentiment as three separate companies reported strong results with COVID-19 vaccines in late-stage trials. Market participants, longing for a return to normal, viewed this development favorably, leading markets in a more positive direction. While it remains to be seen how newly enacted economic shutdowns will affect future data, economic recovery continues at a steady pace for now. The ISM Manufacturing Index fell slightly in November to 57.5, from 59.3, yet still represents an encouraged manufacturing sector. October unemployment was reported at 6.9%, a lower rate than both the previous of mark of 7.9% and expected rate of 7.7%. On a less encouraging note, U.S. shoppers spent significantly less over the Black Friday through Cyber Monday weekend as compared to last year. Although more was spent online, far fewer people visited stores, largely due to the COVID-19 pandemic. It appears that neither party will likely control both the legislative and executive branches of government. With Biden as the presumptive winner and a runoff in store for two senate seats in Georgia, Democrats could still achieve the “hat trick” of the Presidency, the House, and the Senate. Absent this total control by one party, markets will likely view the resulting probability of political gridlock as favorable, with the known situation or “status quo” being often preferred by investors.
November equity markets enjoyed renewed enthusiasm and strong returns, due largely to the hope represented by the promise of a new vaccine. Accompanying this surge in stock prices was a change in leadership, away from the large-cap tech stocks that have dominated returns following the pullback due to coronavirus-related shutdowns earlier this year. In a reversal of recent trends, the Dow and S&P 500 outperformed the tech-laden NASDAQ, but small cap stocks, as represented by the Russell 2000, benefitted most and led all equity indices at 18.42% for the month. However, this shift in sentiment is far from correcting the dominance that the NASDAQ has enjoyed so far this year, with YTD returns of more than 37%, nearly triple the returns of the next closest index.
Following the tone of the equity market, corporate bonds set the pace for fixed income in November, with high-yield corporates posting an especially strong 4% return. Despite continued economic recovery and the promise of a COVID-19 vaccine, yields on Treasury debt moved lower, though not significantly, during the month. These lower yields, combined with tighter spreads on corporate and agency debt, led to positive returns for all fixed income indices displayed above. Year-to-date returns remain very strong, with indices holding longer maturities and safer investments leading the way. With the economy still in need of the stimulus provided by low rates, the Fed is unlikely to adjust the funds rate anytime soon.