Recent market movements indicate that traders are increasingly investing in the reflation trade, focusing particularly on sectors such as energy, basic materials, and industrial stocks. This is reflected in a range of exchange-traded funds. While it is premature to conclude whether this shift will prove to be enduring, the notable change in sentiment over the last few days cannot be overlooked.
Key developments from last week include:
- Trump contemplated a military strike on Iran: NYT
- Trump’s administration obstructing Biden’s transition efforts: PLTC
- Various US states are implementing new COVID-19 restrictions: Reuters
- Moderna reports its coronavirus vaccine has an efficacy of 94.5%: CNN
- Pfizer initiates a pilot delivery program for its COVID-19 vaccine in four US states: RTRS
- Judy Shelton’s confirmation for the Fed is uncertain due to waning GOP support: MW
- Amazon unveils an online pharmacy: CNBC
- US retail sales expected to see growth for the sixth consecutive month in today’s October report: WSJ
- Hungary and Poland stall the EU budget: BBC
- NY Fed Manufacturing Index indicates a slowdown in the growth of the manufacturing sector in November: MSTAR
- The US stock market (S&P 500) surges to a new record high:
Last week, real estate stocks experienced a remarkable surge in both the US and international markets, achieving the most significant gains among major asset classes. This trend can be traced through various exchange-traded funds.
Recent reports indicate a significant escalation in coronavirus cases in the US, now surpassing 11 million: RTRS
Health authorities express concerns over the risks stemming from delays in Trump’s transition: POLT
China bolsters its economic dominance with a new Asia-Pacific trade agreement: BBC
Analysts suggest that the Asia-Pacific trade pact favors China: CNBC
China’s economy seems to be picking up pace in Q4: WSJ
Trump is expected to make aggressive moves against China before leaving office: BBG
Japan’s economy saw a sharp rebound in Q3 after a previous downturn: NIK
The UK Prime Minister is currently self-isolating after possible exposure to COVID-19: CNBC
Consumer sentiment in the US slipped in early November: RTRS
Sebastien Page
Summary via publisher (McGraw-Hill)
Asset allocation is crucial to investment performance. Unfortunately, no single model is foolproof—the right balance necessitates thorough evaluation of the various models, investing methodologies, and the risk tolerance of you or your clients. This essential guide, authored by a leading expert from T. Rowe Price, offers the insights, knowledge, and strategies required for optimal allocation decisions. This comprehensive exploration of asset allocation focuses on the three key components essential for a well-allocated portfolio.
Small-Caps on the Rise: Small-cap stocks in the US have underperformed their large-cap counterparts this year; however, recent market behavior suggests a notable shift. This week’s substantial rally among small-cap stocks indicates a potential rotation towards these smaller firms.
Reviving the Value Premium
David Blitz (Robeco) and Matthias X. Hanauer (Technische Universität München)
October 15, 2020
The value factor has faced a prolonged decline, leading to skepticism about its recovery as growth stocks dominate the market. Although value and growth have historically alternated leadership positions, the current situation raises questions about whether this trend will continue. This paper contributes to existing literature by revealing that the HML value factor has suffered a long-term decline, and presents strategies for resurrecting the value premium through insights validated in the literature and practical experience. Our enhanced approach also acknowledges recent underperformance due to extreme changes in valuation multiples, similar to patterns observed in the late 1990s. We conclude that a robust value premium remains evident in the cross-section of stock returns.
US election security officials confirm there is ‘no evidence’ that voting systems were compromised: UST
China extends congratulations to Biden on his election victory: CNN
China issues a warning following Pompeo’s assertion that Taiwan is not part of China: RTRS
Trump mandates a ban on American investments in Chinese military companies: BBC
UK, EU, and US condemn China’s actions against Hong Kong lawmakers: NPR
A report suggests that global temperatures will continue to rise even if greenhouse emissions are reduced to zero: UST
Central bankers indicate that economic risks remain elevated: NYT
Measles deaths worldwide hit a 23-year high in 2019: NYT
Eurozone Q3 GDP growth was revised downward: RTRS
Business inflation expectations have increased to a modest 1.9% outlook: AF
US consumer inflation remained unchanged in October: BBG
Jobless claims in the US have fallen to a pandemic-era low but remain unusually high: CNBC
In recent years, the value factor has experienced significant struggles, sparking discussions on its potential for recovery as growth stocks surge. Historically, value and growth sectors have alternated leads, leaving open the question of whether this time will be different. As we await market outcomes, let’s examine the value-growth relationship through the perspective of rolling one-year returns.
COVID-19 cases and hospitalizations in the US continue to rise: CNN
A Biden advisor suggests the possibility of a new lockdown to combat the pandemic: CNBC
Trump’s legal strategy focuses on obstructing the certification of Biden’s victory in several states: WSJ
Georgia will conduct a hand recount of presidential election ballots: CNBC
UK’s economy rebounded in Q3 with a remarkable GDP surge of 15.5%: CNBC
Eurozone’s industrial output unexpectedly declined in September: Reuters
Central banks are facing pivotal challenges as the COVID crisis disrupts economies: BBG
The 10-year Treasury yield is on the rise, reaching an eight-month high of 0.98%.
COVID-19 cases and hospitalizations in the US continue to rise: CNN
A Biden advisor suggests the possibility of a new lockdown to combat the pandemic: CNBC
Trump’s legal strategy focuses on obstructing the certification of Biden’s victory in several states: WSJ
Georgia will conduct a hand recount of presidential election ballots: CNBC
UK’s economy rebounded in Q3 with a remarkable GDP surge of 15.5%: CNBC
Eurozone’s industrial output unexpectedly declined in September: Reuters
Central banks are facing pivotal challenges as the COVID crisis disrupts economies: BBG
The 10-year Treasury yield is on the rise, reaching an eight-month high of 0.98%.
### Conclusion
In summary, recent developments across various sectors and the macroeconomic landscape suggest a significant shift in market sentiment. Traders are adapting their strategies in anticipation of changing economic conditions, particularly in the context of inflation and growth. As we monitor these changes, it will be critical to stay informed and responsive to ongoing trends.
