Risk Sentiment Continues to Improve Even as Coronavirus Weighs On

Risk sentiment in the entire capital market has been rising this month, even as the resurging coronavirus cases weigh on the health of global economy.

Cyclical sectors — those most economically sensitive groups — have led the market’s November rally amid a slew of positive vaccine news. Energy, 2020’s biggest loser, has jumped 33.8% this month, while financials, industrials and materials have all gained at least 13% during this period.

Small caps have been on a tear this month as investors piled into beaten-down value names. The Russell 2000 has rallied 20.6% so far in November, on track for its best month ever. This rally has been notable as the rotation from Growth to Value has continued to gain momentum despite the negative news flow of COVID-19 cases surging around the US and lockdowns again being imposed in various parts of the nation.

The market is coming off a record-setting holiday week that saw the 30-stock Dow surge past the 30,000 milestone for the first time. The benchmark has since dipped below the threshold. The S&P 500 and the Nasdaq both closed at fresh record highs on Friday.

Earnings are going to continue to come in better than most people think. Despite the S&P 500 and Dow’s all-time highs, most individual investors are sitting on way too much cash. They’re going to be forced to pay up in this strongest seasonal period of the time between Thanksgiving and New Year’s.

The S&P 500’s record run is relative to the market breakouts between 1949 to 1966 and notably 1982 to 2000, the period which included the 1987 crash. The biggest risk for the market would be a geopolitical event, second would be a policy mistake out of Washington.

Still, investors continue to monitor the coronavirus pandemic which has killed more than 266,000 people in the US. Dr. Anthony Fauci, the nation’s top infectious disease expert, said on Sunday that the US is heading into a tough period amid the pandemic in which restrictions and travel advisories will be necessary.

Los Angeles County in California imposed a new stay-home order Friday as cases surged in the nation’s most populous county. Meanwhile, New York City public schools will begin to reopen on December 7.

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