US markets continued to rip today, with both large and small equity indexes closing higher. Europe joined in on the party as well, while emerging markets declined to participate today.
To what do we owe the continued rally? Paradoxically, it may be because of the poor jobs number today… While you might think that might be a harbinger of negative stock market action, quite the contrary has been true for the last many years. Markets are able to brush off bad numbers on a regular basis, as participants often see negative economic releases as impetus for the Fed or the administration to stimulate the economy. So, since this is 2020, bad is good. How long will this trend last? Who knows, but for now both the Fed and the Federal Government seem dedicated to inflating asset prices no matter how much money they need to pump in to the system.
With markets up as much as they were today, factor performance for the day was a bit surprising. Normally, on days of ample up action Momentum and Growth stocks lead the way. Today, however, Value and Low Volatility stocks were the market leaders.
Now, just like every day when Momentum and Growth don’t lead the way, I’ll remind you that great days for Value stocks and Low Volatility stocks have been scant this year. When you look at the year-to-date numbers Growth and Momentum are crushing everything else, with ESG as a distant third; and remember as I wrote about a while back ESG performance has been driven by their overweight positions in the same FAANG stocks that are driving Momentum and Growth factors.
In fact, speaking of FAANG stock performance, I saw a great chart today showing just how lopsided markets have been this year.
The chart shows the top five contributors to S&P 500 returns over the past decade. As you can see, this year has been heavily influenced by just a few stocks. Given that the S&P is up around 12% for the year, these five stocks have accounted for almost the entire difference between a positive year and a negative year… Astounding.
Fixed income has another good day, driven the above-mentioned hopes of more stimulus. Or, to put it another way; the crummy jobs number made market participants feel like rates are definitely not going up, for a long time.
Longer dated issues were the best performers today, but that is no surprise given the hopes of stimulus that markets are beginning to price in.
What to Read
School is really stressful for kids, not having it is making them feel better. Maybe we should make some changes…
Less mainstream indicators are showing a stalled recovery
People are stocking up on guns like it’s 2020, oh wait.
The dream of hydrogen power may be a ways off yet
Sector performance dispersion is super high this year
And finally, unemployment by education level
Cheers,
Nathan