What a month November turned out to be. In order to maintain consistency, I thought it would be good to do a quick recap before we dive into December!
·The US presidential election is still ongoing with no winner called officially by the electoral college. Although the transition is slowly taking shape for “president elect” Biden.
·Divided government likely blocks disruptive legislation (pending Georgia Senate seats) and has underpinned the rally along with vaccine news broadening the move upwards
·Janet Yellen named Joe Biden’s Treasury secretary – Positive for the stock market
·As expected, despite a really rough year, many stocks are performing extremely well, and the US stock market reached a never before seen record high – Rotation “Growth to Value”
·Long end Bond Rates move higher, looking past the pandemic to future economic growth
·Investment Grade bonds have little value left and come with Duration risk
·Oil price depend on OPEC continuing the production cuts as demand is still weak.
·The UK looks on course for a hard or no deal Brexit with talks not able to move beyond fishing rights.
·10% + returns for all three major indexes (DAJI, S&P500, NASDAQ) for month of November.
For the second month running, this is the big news and despite it being a contentious issue, it would be ignorant to ignore it. I suspect that this will continue to drag out as president Trump continues to disregard the reality of his defeat.
In terms of the markets, I would expect very little volatility due to election headlines as the market is already seeing well past the longshot legal challenges and into the future Biden administration. As witnessed in the strong out performance of “Biden” stocks, most predominant being the clean energy sector which has been on fire leading into the election and has continued to gain steam.
Example: Plug Power Inc. (Fuel Cell Systems) – Up over 40% since election day
You will have undoubtedly seen the US stock market (Dow Jones) breaking the 30,000 mark, but you might not know why this has happened and why the forecasts for the stock markets continue to be favourable, despite a very turbulent year.
Essentially, the market rotated from stay-at-home COVID stocks that have typically been seen as defensive stocks during the pandemic (more on these in a moment) giving way to “reopening” stocks that tend to be more cyclical in nature. Defensive stocks are the stocks that investors tend to buy up during times of uncertainty and volatility – the likes of consumer staples and telecommunications. These stocks are considered safe havens, because regardless of the markets, the world will always need to eat and chat on their cell phones.
Online sales this November and December are forecast to surge 33% year over year to a record $189 billion, according to from Adobe Analytics.
Factory activity expanded at the fastest pace in more than years in November (PMI 52.1) as the economic recovery from COVID pandemic steps up, although not always in a straight line up
Strong US Real Estate Market – US new home sales up over 40% year over year in November
Cyclical stocks are considered more economically sensitive and when money moves towards them, its seen as an indicator of future economic growth. Stocks in banks and retail for example are more tied to the economy and economic activity. These stocks should continue to perform well especially with stimulus packages on the horizon.
Early in November, Pfizer announced it had a vaccine that was 90% effective in tackling COVID 19. As part of operation warp speed, Pfizer and other pharmaceutical companies had been incentivised to work towards a COVID 19 vaccine. Initially this sparked a lot of interest in Pfizer stock, but with the announcement of rival Moderna’s 95% effective COVID 19 vaccine the competition has heated up.
As if the two-way rivalry wasn’t enough, AstraZeneca announced they too had created a vaccine that is not as effective as Moderna’s vaccine but requires less dosage and is much cheaper. Of course, for investors with stocks in any of these companies, November was a good month, but importantly, these vaccines signal a way out of the COVID 19 nightmare we have experienced this year.
Again, it moves the market towards a much more positive outlook with plenty of opportunity to pick out great stocks to buy up heading into the new year.
Facebook, Google and Twitter have all been dragged before congress in the last month and there seems to be an appetite in Washington to either begin properly regulating these companies or worse, break them up because of the monopolistic nature they hold. How this unfolds really remains to be seen but this battle is going to be ongoing – possibly for a few years to come.
I’d look to add to FANG positions on any weakness from both potential regulatory policy changes and or the sector rotation into value. The bull case is still intact, but FANG will most likely underperform the “reopening” stocks in the short term as they play catch-up.
Here is a summary of what to expect in December:
Hopefully by Christmas the Presidential drama will almost be over.
·Cyclical stocks should continue their momentum into the new year as vaccines begin to distributed to the first people by mid/late December.
·Continued strength in US housing sales and gains in market values
·Decrease in unemployment rate, although slower then estimates predict in my view
·More global stimulus announcements for 2021, both fiscal and monetary.
·Wall street continues to increases S&P 500 price targets
·If the US and UK indicate a strong post Brexit trade deal, then this could start the new year very well for both markets.
My final thoughts are that December is a month we should be quietly optimistic about. Although we aren’t out of the Coronavirus woods yet, the trees are parting, and we seem to be heading toward sunny pastures. There are likely going to be a few snags along the way and possibly some unexpected surprises too, so make sure you keep your ears to the news and keep track of what is happening. I hope you all have a wonderful holiday season, and I will get to work on my January newsletter to help welcome in the new year.
