Right on schedule, November continued 2020’s legacy of rapid market moves. News of a vaccine from Pfizer and BioNTech was quickly met by a sharp move higher in value and cyclical stocks and a steep selloff in the “work from home” stocks that had been in favor the majority of the year. The volatility experienced across equity factors this year has been on par with the Great Financial Crisis (GFC) of 2008. The move continued with the positive vaccine news from Moderna. The chart below shows the 10-day historical volatility for the investing factors momentum, value and profitability. Factor investing is an investment approach that involves targeting quantifiable firm characteristics or “factors” that can explain differences in stock returns. Famous examples include investing in stocks with the best returns over the past 2-12 month time period (i.e. momentum) or stocks that are cheap based on a composite of measures such as price-to-sales, price-to-earning, price-to-cash flow (i.e. value), and the profitability factor focuses on gross profits and return on assets. Momentum stocks, as can be seen by the spiking white line, are the latest to suffer a dizzying spell of volatility as investors rushed to rotate from the recent winners and into the companies that might benefit from a durable economic rebound.
To put the rebound of the out-of-favor stocks into perspective, below is a table of the 20 worst performing stocks in the Russell 1000 Index based on YTD returns through 10/31 as compared to returns in November so far through the sixteenth. Time will tell if this is finally the long awaited rotation from growth stocks to value stocks.
Treasury bonds have been sold off on vaccine news euphoria, but appear to now have found a level of support as positioning nears an extreme level of bearishness that may portend a sharp reversal higher in the near term.
Excess savings may provide pent up demand next year and, in turn, fuel faster economic growth post-vaccine. From Goldman Sachs, “households are likely to lower their high ‘forced’ saving rates, and to spend down some of the excess savings that accumulated during the pandemic. We expect this to trigger a mid-year consumption boom that lifts annualized GDP growth to +7% in Q2.”
After all of the 2020 election noise and electoral map projections and counts, we thought a map to break the tension might be of interest. Below is a map of all of the states and each of their favorite Thanksgiving side dishes.
As we close in on the final days of 2020, we want to wish everyone a less stressful and simpler 2021. As always, we are here to answer any questions or concerns you may have.