It appears an orderly transfer of power will occur in January 2021. What has the stock market told us about the election and our investing future?
November is often a bullish month for stocks, whether it be because investors are looking ahead to the next year’s profits at companies, or in our current situation, a horizon of a return to normal activity when a vaccine arrives and is distributed. November 2020 didn’t disappoint, as stocks rose around the world.
What we’ve seen since the election is a rotation among stocks from Large US growth stocks (the only winners during the pandemic) to Small US stocks and Foreign stocks. Both Small US stocks and European stocks had their single best month ever in November.
So, what happens next? Here is a chart showing Large cap US stocks (S&P 500) results after big monthly gains. Big monthly gains are rarely followed by big monthly or yearly losses.
Why all this optimism when current economic activity seems to be lagging? The stock market is a forward-looking vehicle-is it telling us that activity will be getting back to normal next year? Or, with interest rates so low, is it merely telling us there is no alternative? Are investors happy with the idea of a split in the three bodies of government thinking that might keep taxes in line? Only time will tell. One thing is certain, again, timing moves in and out of the market based on current news is a fool’s errand.
As always, a globally diversified balanced portfolio is the most sound foundation for dealing with the unknowable future in investing.