- Positive results from late-stage coronavirus vaccine trials from Pfizer and BioNTech, Moderna and AstraZeneca were the key driver of the move higher, while monetary policy in the face of the coronavirus pandemic has remained extraordinarily supportive and looks likely to continue to do so.
- The rally has also been characterized by an apparent rotation towards cyclical stocks, whose performance tends to align with the trajectory of the global economy.
Global stock markets closed out a bumper month of gains on Monday, outperforming the U.S.
Fueled by coronavirus vaccine progress on multiple fronts and continuing unprecedented support from central banks, investors have poured back into risk assets throughout much of November in the hope that an economic recovery is on the horizon.
The MSCI World index, which includes 1,603 companies across 23 developed markets, didn't beat it's all-time monthly record, but did close up 12.66% for the month. The pan-European Stoxx 600 index, meanwhile, clocked up its best-ever month in November, ending 13.73% higher.
This marks an outperformance when compared to the major U.S. indexes, where the S&P 500 rose 10.75% in November, and the 30-stock Dow Jones Industrial Average gained 11.84%, its biggest monthly leap since 1987. The Nasdaq Composite rose 11.8%.
Positive results from late-stage coronavirus vaccine trials from Pfizer and BioNTech, Moderna and AstraZeneca were the key driver of the move higher, while monetary policy in the face of the coronavirus pandemic has remained extraordinarily supportive and looks likely to continue to do so.
Positive momentum was further compounded as the outcome of the U.S. presidential election became clearer and Joe Biden emerged as president-elect.
Elsewhere across the world, the MSCI Asia ex-Japan index gained 8% in November and the MSCI Emerging Markets Index was up 9.2%.
The month's rally has also been characterized by an apparent rotation towards cyclical stocks, whose performance tends to align with the trajectory of the global economy. Investors have also opted for value stocks — those deemed underpriced relative to their fundamentals — over growth stocks like the big tech names which had driven much of the market recovery from March's crash.
In a note Friday, Barclays suggested that while some consolidation was to be expected following November's rally, it would not be in keeping with typically positive seasonal momentum going into the year-end.
Barclays equity analysts backed the "reflation" trade and said they expected the shift towards emerging markets, value and cyclical stocks to continue. But they noted that there was an element of near-term caution among clients.
"Understandably, many argue the size and speed of the move in November makes it unlikely the market can rally further, at least for now, as technicals are overbought," Barclays Head of European Equity Strategy Emmanuel Cau said in the note.
"We sense that investors may have been caught oﬀ guard by the recent risk-on move and hope for a better entry point. A pull back thus seems widely expected at the market level, as well as some reversal in the outperformance of recent winners."
Since Pfizer announced the results of its third-phase vaccine trials on November 9, the energy sector has rallied by a third and financials by more than one-tenth, according to TS Lombard MD of Macro Strategy Oliver Brennan. He also highlighted that the tech sector had recorded a small decline, highlighting the scale of the recent rotation.
Brennan flagged that when combined, the energy, financial, industrials and materials sectors had seen more than $7.5 billion of inflows during the period since Nov. 9. With the U.S. economy in its recovery phase, Brennan suggested that cyclicals should continue to outperform, and he expects consumer discretionary stocks to outperform consumer staples in this environment.
"From a simple positioning perspective, financials look good. However, as financials depend on rising yields, we are cautious about how far this sector can run before the (U.S. Federal Reserve) asserts its position over the yield curve," Brennan said in a research note Wednesday.