Strong Seasonality / Earnings Week Of 11/30, Analyzing November

The first thing to know is that December, which begins on Tuesday, has been the second best month for the S&P since 1964. It has been positive 71% of the time since 1964 with an average gain of 1.3%.

Investors have become uninterested in worrying about downside risks – Tobias Levkovich, Chief US Equity Strategist, Citigroup, quoted in Ben Levisohn, The Trader Column, Barron’s, November 27

However, I am not sure it will be a great month this year because of how strong November has been. According to Ben Levishohn in yesterday’s The Trader Column in Barron’s, the S&P was +11%, the NASDAQ +12% and the Russell +20% in November. Stocks don’t go straight up. My feeling is that December’s strong seasonality has been pulled forward by the huge moves we saw in November.  

There are actually a number of significant earnings reports next week. Zoom (ZM) reports on Monday afternoon, Salesforce (CRM) Tuesday afternoon, Kroger (KR) Thursday morning and Ulta Beauty (ULTA) Thursday afternoon.

Now that we’ve set the stage for next week and December, let’s review what happened in the historic month of November 2020.

The key events of November were the announcement of the effectiveness of COVID vaccines from Pfizer (Monday, November 9) and Moderna (Monday, November 16). These announcements catalyzed a radical rotation in the market out of the stay at home, pandemic beneficiary stocks, many of them tech stocks well represented by the QQQ (NASDAQ-100 ETF), into reopen, real economy stocks that skew value and are well represented by the IWM (Russell 2000 ETF). According to Ryan Detrick of LPL Financial, the Russell 2000 was +20.5% through Tuesday, November 24th, and is on pace for its best month ever.

The great technician Carter Worth put up a chart on Twitter on Wednesday, November 25 showing the relative performance of the S&P Financial, Industrial, Material and Energy sectors, also a good proxy for reopen stocks, to the the S&P 500. If you look at the bottom chart, you can see that this basket of equal weighted stocks hit a downtrend line versus the S&P from late 2016 at which it failed. Worth’s conclusion is that the rotation trade is now to be faded: “Conclusion: Fade the collective move in Financials, Industrials, Materials and Energy”.

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