U.S. justice markets bounced out of early losses to notch slight gains for the DJIA and the S&P 500, which topped a new closing spaced out. Energy stocks led the gains as oil prices ticked higher on good vaccine news and continuing talks among OPEC fellows about maintaining production cuts.
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The shift into consumer discretionary stocks has gone into high gear as investors are predilection in harder on the recovery trade. A lot of professional money managers were late to that and now they have some winning up to do (more below). They may have a chance given what usually happens after market gains of 10% or multifarious in a month, like we saw in November.
According to LPL Financial, a 10% monthly gain has been replaced by additional gains the next month more than 50% of the time, and gains over the following three months all round 75% of the time. And historically December has been the second best month of the year, behind November — except for that 10.8% throw over in Dec. 2018. History is full of outliers.
What We Want vs. What We Need
The rotation into the amelioration rally has boosted consumer discretionary stocks as investors bet on a tsunami of spending once vaccines go mainstream. Consumer discretionary bloodlines include auto, home, and luxury retailers and travel-related industries. Consumer staples stocks, like food and beverage enterprises, household product producers, and discount retailers, held up very well throughout most of the pandemic, but the rotation from indispensables to discretionary stocks has become very pronounced.
As JC Parets at
Mutual Funds Missed the Recovery Rally
Do you remember those October outflows from complementary funds and ETFs we were writing about yesterday? Not only was the timing terrible given November’s bounce, but scads mutual fund managers were not able to time their re-entry correctly. At least that’s the assessment of BofA’s probing team and its mutual fund manager report card.
According to BofA, only one of three of the large cap active interactive funds outperformed their respective Russell 1000 benchmarks in November. Year-to-date, only 36% of funds spent the benchmark, down from 40% as of October.
What They Were Missing
50% of large cap funds were underweight vim and 20% were underweight financials, the two best performing sectors (+27% and +17%, respectively). You can’t blame the funds for being prudent around those two beaten-down sectors, but the harder the stocks fall, the faster they rise when sentiment budges. It’s hard for portfolio managers to pivot quickly given the funds’ structures — which may explain some of the outflows in October.
Americans Souring on Economy
Nine months into the pandemic and many Americans are worn out and getting fretful about the economy. We were supposed to be further along into the recovery by now, but we didn’t do enough to prevent a resurgence of the virus.
Gallup’s scad recent poll on Americans’ outlook for the economy shows an unwelcome increase in the percentage of Americans who say the economy is getting worse. Sole 40% believe it’s getting better, still well off April’s lows, but a tick down from the prior month.