Equities Surge In November. What Can We Expect Next?

Those that follow my personal account on Twitter will be familiar with my weekly S&P 500 #ChartStorm in which I pick out 10 charts on the S&P 500 to tweet. Typically I'll pick a couple of themes to explore with the charts, but sometimes it's just a selection of charts that will add to your perspective and help inform your own view – whether it's bearish, bullish, or something else!

The purpose of this note is to add some extra context and color. It's worth noting that the aim of the #ChartStorm isn't necessarily to arrive at a certain view but to highlight charts and themes worth paying attention to. But inevitably if you keep an eye on the charts they tend to help tell the story, as you will see below.

So here's another S&P 500 #ChartStorm write-up:

1. 2020 snapshot

As we head into December here's a snapshot of 2020 YTD… fairly decent numbers. If you went to sleep Dec 2019 and woke up now you'd be like: that was a decent year.

It’s been a wild ride in 2020. From the steady crawl higher to start the year, to the 34% COVID crash from February 19 through March 23, through the massive move off the low. The latest feature is a sharp rotation into beleaguered areas of the stock market as the high-flying mega tech growth names have taken a relative breather.

Putting it all together, the S&P 500 is up 12.6% on a price return basis and has returned nearly 15% when including dividends. Wouldn’t be ironic if it settled at an ‘average’ return for the year? December tends to feature decent returns, but we’ll get into that shortly. The sentiment is running hot right now, but so too is the global breadth, so which will yield? We’ll hope to address some of these current market features today.

Bottom line: Ho-hum.. a 13% advance for the S&P 500 this year. Just ignore that 34% crater during Q1. The rally off the low was remarkable. Never in the last 40 years has the S&P 500 fell 20% or more intra-year to then post an annual double-digit percentage climb.

S&P 500 YTD Price 2020S&P 500 YTD Price 2020

2. Seasonality snapshot

Historically 70% of Decembers were positive [but note with benefit the worst drawdown column and the standard deviation around the average return] We’ve all heard the refrain that November through April is a friendly time for the bulls. December is among the best months of the year considering how low volatility tends to be. Returns during the month can be a little shaky at the onset, but then a mini-melt up sometimes occurs in the final two weeks. Check out our LinkedIn post regarding a rather cheery seasonal outlook (we turn a little Scroogy at the end!).

The final month of the year often sees rising stock prices and declining volatility. Since 1964, 70% of all Decembers have had a positive return. Within the market, momentum stocks tend to do even better than the S&P 500. We talked about how momentum sees a rebound in the final month of the year on last week’s ChartStorm. But hold your reindeer.. seasonality is simply a statistical description of the past. It’s a secondary indicator at best. A portfolio manager is better suited to arrive at a core thesis first and then dig into seasonal trends.

Bottom line: Don’t turn your back on December. Drawdowns can still happen – we don’t have to recall back far. 2018 featured a massive decline before a rally in the final week of the year. Nevertheless, the historical tendency is for December to provide strong risk-adjusted returns … on average …

S&P 500 Monthly ReturnsS&P 500 Monthly Returns

3. Seasonality: value vs. growth

Monthly avg. returns for Value vs Growth December is usually decent for value vs growth… Value has beaten growth by more than 4% so far in November. SPDR® Portfolio S&P 500 Value ETF (NYSE:SPYV) is +13.9% while SPDR® Portfolio S&P 500 Growth ETF (NYSE:SPYG) is +9.8%. It’s hard to complain either way if you are a value or growth-oriented investor (take a step back to YTD.. SPYV is -1% vs. SPYG +28%). November has historically been a better month for growth, but of course, any one year can do its own thing. What does the future hold? December has a bias toward value with the factor returning about a quarter of a percent.

Nothing to write home about. January sees a little better gains. Many pundits’ eyes will be on value stocks to see if the group can buttress a winning November with another month of outperformance. Energy stocks and financials have done exceptionally well over the last several weeks. Small caps have also beaten large caps as the latter has become dominated by growth names. The large cap index will soon welcome a new growth member.. Tesla (NASDAQ:TSLA).

Bottom line: Value stocks tend to end the year well relative to growth equities. There is persistence for the group’s strength that can last through April of the following year. It’s good to keep trends in perspective though; the latest jump in the value vs. growth chart is a blip on the radar.

S&P 500 Value Vs GrowthS&P 500 Value Vs Growth

4. Mean reversion in Value vs Growth

And here is that relative performance chart of S&P 500 Value vs. Growth indexes since 1975. November’s paltry rally in value can be seen if you zoom in enough. What’s remarkable is just how much growth crushed value for much of this year. The ratio chart went into a freefall during Q1 when investors shifted sharply to online buying, virtual learning, and stay-at-home trades.

Value industries that often feature in-person businesses and brick & mortar operations were shunned. The trend was nothing new though. The value factor peaked in the mid-2000s in the years after the dot-com bubble. It took a while for the crash in the Nasdaq to settle. Meanwhile, energy stocks soared with rising oil prices and banks were enjoying the high-interest rate environment with solid net interest margins.

Always know your trend though. The decade of the 2010s was one for Growth bulls as tech reigned supreme. Will Value return to favor? Probably, but it’s hard to call the bottom. Analysts have been trying all year. Remember the strength in small-cap value during May and early June? You can even go back to Q3 of last year to see similar predictions that ‘this is the time’ for value stocks.

Bottom line: Long-term trends are tough to break. Violent corrective rallies can take place, which is usually when we hear the talking heads proclaim the underperforming group of stocks will be the new comeback kid on Wall Street. That’s what we hear now in the value vs. growth debate. November’s relative rally looks like small potatoes so far.

S&P 500 Price PerformanceS&P 500 Price Performance

5. Some key Value vs. Growth sectors

This chart from @CarterBWorth digs deeper into the value theme. Three of the heavy sectors for the group are financials, industrials, and energy. Combined that is 191 stocks with a market cap of $7.4 trillion (about 25% of the S&P 500). The group broke out to fresh highs during November, surging further above its 150-day moving average.

Take a look at Carter’s chart below the price chart though. The value group finds itself at resistance versus the S&P 500. It backed away from the trendline last week. Looking at history, small cap value stocks had a mini-peak relative to large cap growth equities in late 2016 following the election. Sentiment ran high that the new President’s policies would favor domestic firms. The honeymoon did not last long. Relative strength returned to growth stocks in 2017 and beyond.

Fast-forward to today. Carter’s chart displays an interesting pattern for the value bulls. The relative performance chart shows a basing pattern for much of this year. Could it be a head fake? Of course. But it also looks like a reasonable bottoming pattern. Traders should monitor how this current ‘throwback’ on the relative chart plays out. Value bulls also want to see the value climb above that red resistance line.

Bottom line: A large group of value stocks broke out during November, but there is still work to do on the relative chart versus the S&P 500. The trend remains down, and value has already backed away from resistance versus SPX.

S&P 500 Market Cap ChartS&P 500 Market Cap Chart

6. Extraordinary volatility in factors this year

The thing about volatility like this it usually doesn't just spike and then go away… tends to stay elevated. @westermangroup brings us a chart from Bloomberg showing just how volatile the factor zoo has been this year. The last market cycle featured an ETF for every imaginable factor as investors searched for bits and pieces of outperformance. And the ETF sales industry has been there to meet their every beck and call. Sure enough, volatility within the factors kicked-up right when investors piled into all of the new products.

Perhaps some shaking out is a good thing. Momentum, value, and profitability are among the three most popular niches. The below chart goes back to 2008, and 2020’s factor volatility has been like no other time. We all can recall days this year when value beat growth by x% while growth crushed value by y% over a one-month timeframe. It’s been a market statisticians’ delight.

The thing about volatility in financial markets is that it doesn’t just go away. We see sharp spikes followed by gradual downturns. It took more than 8 months for the VIX to revert to 20 after screaming above 80 back in March. Volatility took even longer to retreat in the wake of the GFC.

Bottom line: Buckle up if you are a factor investor. Huge daily swings in relative performance are likely going to continue in 2021. The relative calm of momentum’s outperformance over the last decade is likely a thing of the past. And value investors’ exposure to the beaten-down names will come at a cost – volatility.

Quant SuperquakeQuant Superquake

7. 'Shiller PE divided by NIPA PE' Further upside?

@HORANCapitalAdv takes us into the world of market valuation. Surging stock prices and shaky earnings are a recipe for valuation concerns. The below chart shows the S&P 500 in red with the Shiller PE ratio divided by Jeremy Siegal’s NIPA PE ratio in blue. NIPA is National Income and Production Account profits provided by the Bureau of Economic Analysis. NIPA after-tax profits tend to be higher than GAAP, so the US stock market valuation is often more attractive when using Professor Siegal’s method.

The ratio of the two valuation tools has been in a downtrend for the better part of the last decade. Recently, a spike occurred, meaning the Shiller P/E rose more than the NIPA PE (NIPA after-tax profits have been on the rise versus GAAP). The implication is there might be more upside for stocks according to the alternate valuation measure. Historically, there is a bullish bias for stocks when the ratio makes an inflection.

Bottom line: NIPA profits tend to show less downside than GAAP earnings (which is what the Shiller PE typically uses, though it can be modified to use operating earnings). The key facet here is the rebound in NIPA earnings, meaning the NIPA P/E ratio has fallen relative to the Shiller P/E ratio.

Shiller PE - NIPA PE RatioShiller PE – NIPA PE Ratio

8. V-Shaped recovery in global EPS

@RichardDias_CFA provides a global perspective on earnings. Are Korean exports the magic bullet to market outcomes? The last 25 years suggest it’s a darn good indicator for global profits at the very least. Let’s take a step back and understand what we are looking at in the below chart. The blue line is global EPS growth on a 12-month trailing basis, year-on-year (currently -17.7%..ouch).

The red line is South Korea’s export growth (year-on-year, looking ahead 3 months). The good news is global corporate profits appear to be on the mend. Through the first 20 days of November, Korean exports have climbed back positive. Meanwhile, 12-month forward EPS growth is expected to be nearly 20%. There are bullish signals for the global economy as we say good riddance to 2020.

Bottom line: South Korea is an important player. The nation’s export activity is a vital sign of strength in foreign economies, particularly emerging markets. Exports have finally turned positive from a year ago for the first time in about two years. A global EPS recovery is on the way.

Global EPS Follow Korean ExportsGlobal EPS Follow Korean Exports

9. The average stock price of S&P 500 companies

@BullandBaird takes us back state-side with a 30-year view of the average stock price among S&P 500 stocks. The range from about $20 to $80 was seen as the ‘sweet spot’ for corporate managers as it indicated a quality stock at a reasonable price. Of course, this makes no sense from a mathematical and valuation point of view since the share price is simply the market-determined value of a company (market cap) divided by shares outstanding. A company can effectively make their stock price be whatever it wants by adding or removing shares from the market via a simple split or reverse split.

But there’s a story here. Technology and trading efficiencies have led to fractional share ownership. The growth in ETFs and less single-stock ownership (not including the trend this year) has made the nominal share price less of a concern for corporate financial managers. Whether a stock is $10 or $1,000 doesn’t make much of a difference. Certainly there are still exchange-listing requirements and rules for the mutual funds that make having a super low stock price is not ideal. Concerns of a quadruple-digit share price eliminating part of the investing crowd have vanished.

Bottom line: The market construct is always in flux. A recent trend has been the advent of fractional share ownership and owning the market via ETFs. The result is less of a focus by firms on keeping its stock price in a ‘reasonable’ range. We see more $1,000+ share prices now more than ever.

Average Price Of StockAverage Price Of Stock

10. Rise of intangibles chart

@VisualCap tells a thousand-word narrative in a single chart, as usual. But we’ll still tell the narrative to close out this week’s ChartStorm. The world changed a lot in 2020, but it just accelerated many trends. I think we’ve all heard that phrase in some form recently. The growth of intangible assets has been ongoing since the 1970s when energy firms and manufacturing were key pieces of the American economy. Cars, factories, and buildings are important, but the next hot idea is where people seek to invest.

A cool new app can generate profits far beyond what a major factory can produce. Simply allowing investors to trade stocks quickly and easily with a swipe on their phone is worth billions while former giants in the industrials, energy, or materials space are just fractions of their peak valuations many years ago. The latest example is Tesla passing Berkshire Hathaway (NYSE:BRKa) in market cap. Or perhaps Transocean (NYSE:RIG) stock surging more than 200% this month to a whopping market cap of.. $1.3B. Railroads and oil rigs are not highly valued anymore – patents, brands, software, and data are cherished by investors.

Bottom line: Investors must recognize when the playing field permanently changes. Sure, some pieces of the market can be mean-reverting, but regime change can turn market participants into heroes or failures. Pivoting to the new construct is vital to proper portfolio risk management.

Tangible Vs Intangible AssetsTangible Vs Intangible Assets

So where does all this leave us?

1. Seasonality & Moving Pieces

Stocks have surged in November. With one day to go, the S&P 500 is up 11% while small caps have outperformed. There has been a strength in ex-US equities, too. The broadening out of the rally over the last several weeks comes after mega-cap growth led the market higher for much of this year. There have been short bursts of relative strength in small-cap value, but the overall trend has still favored the FAAMG stocks. Emerging markets, led by Alibaba (NYSE:BABA), Tencent, and Taiwan Semi (big tech/consumer names) kept pace with SPX over the last year. Among the moving pieces recently have been various factors. Momentum, value, and profitability have seen a surge in wild daily swings. Investors looking to profit from these niches need to buckle up for more volatility. Looking ahead though, December tends to feature decent gains with tepid volatility, at least according to history. Within the month, the first half can be uneasy, but the final two weeks of the year are often cheery. A word of warning though – any single year can do its own thing (see December 2018).

2. Value vs. Growth

You can’t go a few scrolls down Twitter without seeing the latest hot take on the value vs. growth debate. November favored value investors, but not by a whole lot. Everything (sans the safety trades of gold, treasuries, the Dollar, and volatility) has performed strongly so far this month. December often brings more strength in value, and that can persist through April when averaging out historical returns. Longer-term, the relative chart is still down for sectors like energy, financials, and some industrials. Value investors should monitor Carter Worth’s chart for a breakout if there is hope for another upside catalyst. We see this trend to tech/growth names not only in stock price charts but also on the balance sheets of corporations. Intangible assets are valued much more richly than tangible assets. Brands > buildings.

3. Earnings and Evolution

The S&P 500 has seen a massive earning decline over the last year. The comps come next spring and summer will be laughable. Global earnings have taken an even bigger hit, but there is light at the end of the tunnel as South Korean export data suggests a rebound is well underway. The next twelve months should feature a strong EPS recovery. Contrasting the dismal EPS situation in the last 9 months are surging share prices. Corporate managers seem to prefer a gloriously high stock price north of $1,000 to a paltry $10 nominal price. It used to be that the $20 to $80 range was the sweet spot to keep investors able to buy a firm’s shares while maintaining exchange listing rules and mutual fund ownership criteria. Trading technology & fractional share ownership has changed the market in that respect.


Money has poured into global equity markets over the last few weeks. We hinted at this possibility in the weeks leading up to the election. Investors seem to be afraid of political risks, but then once election day passes, they capitulate by hitting the ‘buy’ button. We now turn our eyes to year-end, which can be a calmer period, but as 2020 has well and truly let us know: anything can happen. With that said, we cast our gaze forward to 2021, where leadership change (on a number of fronts), and recovery (likewise a number of fronts) take focus. We'll be writing up our end of year special and outlook in the coming weeks, and I think it's fair to say that we should be in for another interesting year.

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