Stocks soared in November as uncertainty over the election moved behind us and the news of a viable Covid vaccine gave markets a shot in the arm.
The Dow Jones Industrial Average gained 12.2%—at one point topping 30,000 for the first time—and the S&P 500 was up 10.9%, one of its strongest performances after a presidential election.
But amid all the election and vaccine news, there was a bigger story: market trends changed in November as previously out-of-favor stocks outpaced the technology companies that propelled the market for most of this year.
Value stocks beat growth stocks in November by some of their biggest margins in history. November also saw a sector rotation with the previously weak energy, industrial, and financial sectors, outperformed formerly high-flying tech and health care stocks.
Small-cap stocks had their best month since 1988, with the small-cap Russell 2000 Index up 18.2%, outpacing large caps.
Foreign stock markets led US markets. The developed market MSCI EAFE Index, up 14.3%, did better than the S&P 500, thanks in part to the weak US dollar. While the S&P 500 is on pace for one of its strongest quarters in the last 20 years, the US was actually near the bottom of global returns in November.
Is November a hint of where to invest in 2021?
Is the market’s move away from growth stocks a sign of what investors can expect in 2021? Some pundits are heralding a ‘Great Rotation’ from growth stocks. "Stronger global economic growth would favor more economically sensitive U.S. value shares, relative to their growth counterparts, and benefit international markets, which are heavier in value groups such as banks, energy, and industrials," Barron's reported.
But it’s just too soon to say that the market has changed for good.
The large-cap growth trend has lasted longer than most market cycles, and historically, the stocks that do well in one decade fall out of favor in the following decade. But, as we've seen many times in over the years, markets move in fits and starts, and there are often reversals, even within a longtime market cycle.
Value stocks have done well at times during the growth trend. For example, value strongly outpaced growth in 2016. But then growth led for the next three years. Value also pulled ahead in the fourth quarter of 2019, but that didn’t last either.
And while US markets outpaced foreign markets for the trailing decade, foreign stocks have had windows of strong performance during this time. The MSCI EAFE outpaced the S&P 500 in 2012 and again in 2017, but US stocks regained the lead in the following years.
Investing through changing markets
It can be challenging to make long-term investment decisions in a market environment like this one. Do you stick with the large-cap growth and technology funds that have done reliably well for you over the last few years? Or is this an opportunity to buy into new leading funds early before they really take off?
FundX investment advisors specialize in helping people answer these questions and align with leading market trends. It’s what we’ve been doing for more than 50 years. Our time-tested investment strategy is designed to help you capitalize on current opportunities and adapt as stock markets inevitably change.
If you’d like to learn more about how our advisors might help you stay on course in this market environment, click here and set up a time to talk with an advisor.