Equity markets were mixed in October with US small caps and emerging market stocks rising, while US large caps and developed market stocks fell. While there are no doubt reasons for the disparate outcomes, we do not place any undue weight on any one narrative. In the fixed income market there were modest increases in base rates for US treasuries and continued tightening of credit spreads for corporate borrowers.
As we have moved into November there have been two notable events, the first of which was the US election. It is hard to comment on the politics of the election without offending at least half our clients and readers, so we will not. From a market perspective, we will just say that gridlock tends to be preferable and some version of that appears to be the most probable outcome at this time.
The second notable November event was some positive news on the modern-day space race for a COVID-19 vaccine. While we await additional safety data and logistics issues around manufacturing and distribution need to be sorted out, the efficacy data itself looked quite strong and promising. The good news is that there could be a light at the end of the tunnel, but the distance to that light is still unknown.
These two notable events have made for a strong start to markets in November. The vaccine developments have recently led to a rally in cyclical, value, and “re-opening” stocks. Conversely, more growth oriented and “work from home” stocks have been weak. This is a reversal of fortune from what transpired in markets for some time. Whether this is the start of something new, or a mere correction of an over-extended trend, is something we are spending time and mental energy thinking over. There are certainly pockets of excess and clearly some areas of the market that should benefit from an eventual “re-opening”, so enthusiasm on a vaccine in those areas makes some sense to us. However, outside of that we have seen several value/growth reversals over the last several years and note that they have tended to be short-lived.