Farewell To The Best Month Ever

I must be feeling great. The financial news tells me that repeatedly. Seemingly every story tells me that this is either the best month ever, or the best November ever, or something extraordinary about the month that is about to draw to a close. The highlights include:

  • The S&P 500 Index (SPX) is having its second-best month since 1991, surpassed only by April of this year. It would be its best November ever.
  • Energy stocks in SPX are up over 30% (though down for the year)
  • Europe’s Stoxx 600 is up over 15% this month, pushed by markets in France (+21%), Italy (+26%), and the UK (+14.7%) which are all on pace for their best months ever
  • Japan (+15%) finished its best month since 1994
  • Global stock markets added $6.7 trillion to the value of world equities

There are more, but I think you get the point. The world is awash in money and positive sentiment, and they are combining to push asset prices higher around the globe.

How does this enthusiasm jibe with the increasing numbers of vacant storefronts in communities I frequent, the long lines at food pantries, or the growing Covid fears among people I know? The stock market doesn’t care about me or the problems of individuals or small businesses. Stock markets are comprised of large businesses, and most indices are weighted by market capitalization. That means that investors – especially those who follow major indices — are forced to care most about big businesses. 

That said, smaller stock indices have done quite well too. The Russell 2000 Index (RTY) is another index having its best month ever. While the total market capitalization of that index is just a bit larger than that of Apple (AAPL), it is a notable market benchmark nonetheless. Yet even those stocks are too large to be considered small businesses. Small businesses matter in the aggregate, especially to the banks that finance them, but they simply don’t register to the stock markets. This is why we often hear the refrain that the stock market is at best an imperfect measure of the economy.

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Disclosure: The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the ...

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