Top of the markets: rallies and rotation on recovery hopes

Value and cyclical stocks finally started to outperform growth and value in November. 

Primarily thanks to news of several successful Covid-19 vaccines, stocks around the world rallied in November, with some markets breaking new highs.

In particular, the US saw strong performance. Over the course of the month, the S&P 500 gained just under 11%, representing its best performance since April. Meanwhile, the Dow Jones gained more than 12%, breaking the 30,000 points mark for the first time in its history. The S&P 500 now has a year-to-date return of over 14% and the Dow Jones 6.1%

November’s rally was driven by news about successful vaccines, raising investor hopes of an economic recovery that was demonstrated in the sort of stocks that rallied hardest. For example, the S&P 500 Energy Sector index gained a huge 28% over the course of November, driven by expectation that an economic recovery will mean a revival in energy demand. However, the index is still sitting on a huge year-to-date loss of 36%.

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Smaller companies also experienced better performance than the wider market in November. For instance, the S&P MidCap 400 returned more than 14%, while the S&P SmallCap 600 returned an impressive 18.2%. Smaller stocks are generally more cyclical, meaning their fortunes are more aligned with the health of the economy. Year-to-date the mid-cap index is up by 6.7% and small caps 2.7%.

In terms of factors, the S&P 500 Value slightly outperformed the S&P 500 with returns of just over 12%. While all factors saw positive performance, the S&P 500 Quality index, S&P 500 Growth index and S&P 500 Momentum index all underperformed the wider index slightly, representing an investor rotation to more cyclical and value-style stocks. However, all three factors have still outperformed value on a year-to-date basis, while value is sitting on a 2% loss.

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This rotation also allowed the S&P 500 Equal Weight index to gain more than 14% in November, outperforming the S&P 500, which is a market capitalisation-weighted index. By weighting all shares equally, the index was relatively overweight the market's more unloved stocks, many of which saw the strongest gains.

When it came to indices in Europe, the story was broadly similar, with vaccine news also fuelling a market rally on the continent. The S&P Europe 350 returned just over 14%, while the S&P United Kingdom returned 13.3%. Both indices, however, are still negative year-to-date.

The energy sector in Europe experienced strong performance, with the S&P Europe 350 gaining 34% in November. Financials also staged a rally, returning almost 26%. Again, both sectors are still down year-to-date, with energy down 34% and financials losing 16.3%

In terms of factors, the S&P 350 Enhanced Value index also saw significant outperformance in November, returning just over 28%. However, as with the other European indices staging big rallies in November, it still has a long way to go to fully recover from this year’s sell-off, sitting at a year-to-date loss of 16%.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.