The chart says it all. After a couple months of relative weakness, markets were strong in November. Broad based equity index returns ranged from 9.25% for emerging market stocks to 18.43% for small cap US stocks. While there were some style differences, with value stocks rebounding and growth stocks lagging a bit, equity investors had it pretty good last month.
Bond markets also enjoyed positive returns, as rates ticked a little lower and credit spreads for corporate borrowers narrowed. While the gains were lower than equity markets, this is to be expected. In a month where surprises were expected, there was nothing surprising to us about these outcomes, given what transpired.
The narrative for the market melt-up is fairly obvious. The election is in the rear-view mirror, markets like potential grid-lock, and there were positive vaccine developments. There is no need to belabor or opine further on any of these narratives.
As we approach the New Year, and say “good riddance” to 2020, we are thinking more and more about the economy in 2021 and how markets may evolve. With that, it is hard to draw strong conclusions at this point. So, while Wall Street encourages investors to make decisions based on specific predictions, we tend to think and make decisions in a probabilistic manner considering a range of potential outcomes.
