The last two presidential election cycles have demonstrated again just how hard it is for investors to game the vote. Polls are often wrong, or at least misleading, and the interpretation of the results by the markets can be confounding, at least over the short-term.

In 2016, for example, stocks sold off sharply on the night of the Trump victory only to rally thereafter. This year, equities saw the biggest two-day rally since September on the eve of the election, as polls suggested a clear-cut Biden win. Treasury yields rose and bank shares, which had been lagging for most of the year, jumped. The not unreasonable speculation that a major relief package was in the offing percolated through the markets with positive effect.

The election and the stimulus were two of three great unknowns that shadowed the markets at the start of the month. The other: the trajectory of the pandemic. While the election failed to provide the immediate clarity we all would have liked, the markets looked past that pretty quickly, correctly assuming that Biden would eventually be declared the winner.

Going into Election Day, some polls had also suggested the possibility of a “blue wave” – a Democratic sweep of both houses of Congress. When that failed to materialize, markets again took the news in stride. If anything, investors seemed to prefer divided government (an outcome that still hinges on the results of two runoff elections for Senate seats in Georgia). While election week ended on a down note, returns for the five-day period were strong with the S&P 500 up 7.3%, the Dow Jones Industrial Index climbing 6.9%, and the Nasdaq rising 9.0%, the best weekly gains since early April.

Election aside, the push and pull on the policy front continued as Treasury Secretary Mnuchin declined to extend several credit facilities used by the Federal Reserve to fund municipal borrowing and the Main Street Lending program. For his part, Fed Chairman Powell continued to argue for more fiscal stimulus, and the odds of some kind of package being passed appeared to improve somewhat post-election.

Most significantly, however, was the announcement by Pfizer and BioNTech on November 9th that their jointly developed Covid-19 vaccine had demonstrated better than 90% effectiveness in Phase 3 trials. The Dow Jones Industrial Index rose more than 1,300 points intraday on the news, or 4.68%, while the S&P 500 climbed more than 3%. The Dow closed the day up better than 800 points, or 2.95%; the S&P rose 1.2%.

That was followed by more good news the next Monday when Moderna announced that its vaccine also showed better than 90% effectiveness. Later in the month, Britain’s AstraZeneca jumped into the mix with positive vaccine results as well. All this was tempered, however, by a global surge in coronavirus cases and subsequent renewed lockdowns in Europe and the US, which threatened to undermine the economic recovery. Markets found themselves trapped in the middle as this scenario unfolded, rising one day only to decline the next. Still, after a year of seemingly relentless bad news, positive developments on the vaccine front were a welcome respite from recent headlines.

Dollar dinged, market rally broadens

The dollar saw weakness during the month with The Wall Street Journal Dollar Index (DXY) reaching a high of 94.13 on November 2nd and then declining steadily to end the month at 91.87. For international investors, this volatility again highlighted the benefits of currency hedging.

Early in November markets saw some rotation, with a nod to value and away from technology, though as the month came to an end it remained unclear whether or not this move would have staying power. More interestingly, the Dow closed above the 30,000 milestone on November 24th, and the number of stocks participating in the rally began to broaden. Citing Dow Jones Market and FactSet data, a Wall Street Journal story (Nov 30, 2020) noted that in November, 467 of the S&P 500 stocks rose, the largest number since April. In October, just 212 S&P 500 stocks were up; for September the number was 153. This was welcome news to investors, who had become increasingly concerned about the narrowness of the market’s advance.

While there were indications in the jobless numbers that the renewed spread of the coronavirus was taking its toll, much of the economic data released during the month was supportive. Factory production rose 1.0% in October, the sixth straight month of gains. Housing continued to show strength, with existing home sales up 4.3%, according to the National Association of Realtors. Home prices rose on average, with the S&P Core Logic Case-Shiller U.S. National Home Price NSA Index climbing 7% (annualized) for September.

Heading into the busiest season of the year for retailers, Adobe Analytics reported a record $9 billion in online sales for Black Friday, an increase of 22% from $7.4 billion in 2019, the previous high water mark. On the short side of this were the brick & mortar stores, where traffic fell by nearly half, according to data from Sensormatic Solutions, dampened by concerns over Covid-19 and new lockdown measures.

Challenges clearly remain across multiple fronts. But while nothing is ever perfect, it’s hard not to conclude that November brought a dose of hope that has been lacking for far too long.

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