November 2020 Monthly Review
Economic & Market Commentary
After two consecutive months of negative returns, global equity markets rallied in November, notching the best November on record for the last 20 years.The energy and financial sectors, which have underperformed throughout 2020, were top performers in November. Equity rotation occurred as cyclicals rallied and value outperformed growth.
Bond markets also recorded gains in November as core bond indices rose approximately 1%, and long-term Treasury yields ticked lower with credit spreads narrowing. Flows into bond ETFs slowed and allocations shifted. High beta sectors such as high yield and emerging markets soared.
The major catalysts for the rocket-fueled risk rally included election results and positive coronavirus vaccine developments. Optimism drove markets despite new restrictions around the country (and globe) as Covid-19 cases once again surged.
Markets took relief in what seems to be a “complicated” but peaceful Presidential transition and accepted that a divided Congress lessens the likelihood for transformative change.
Positive vaccine trial results and optimistic production timing from Pfizer, Moderna, and Astra-Zeneca fueled stocks and oil prices and accelerated rebounds in securities hardest hit by Covid-19.
The Federal Reserve remains committed to full economic recovery and will utilize all of its tools to support recovery. Credit markets had a bit of a scare as Treasury Secretary Mnuchin unveiled plans to reduce market support and other back-stops from the FOMC. However, markets were calmed as President-elect Biden announced his selection to hire historically “dovish” Janet Yellen as future Treasury Secretary. The Yellen nomination is viewed as politically “middle of the road” which provided relief to market participants.
Economic data was mixed as housing and manufacturing data continued to come in strong while employment and consumer confidence began to slip as the virus resurged. Lay-off announcements from large companies highlight that despite good vaccine news, we are still facing economic challenges.
Portfolio Outlook & Positioning
The Piton team continues to focus on constructing high-quality portfolios. We have taken advantage of current Fed policy and focused on securities that will thrive in a recovering economy. Despite risk markets being “all the rage” in November, fixed income held up very well. Balanced portfolios should see very good performance results for FY2020. Allocations to fixed income have played their role well thanks to quick central bank action in early spring. If you believe in a continued rise in equity markets, a change in fixed income sector allocation or duration may be warranted, or if you are overweight cash at these levels, conservative fixed income may be a prudent step-out the risk curve.
Please reach out to the Piton team to evaluate the right solutions for you and your clients.