November was a busy month in the markets. This commentary will examine key developments and discuss future outlooks.
Election Results
It’s been nearly a month since Donald Trump was elected President, and although he will not assume office until January, the stock market has reacted with strong momentum.
As predicted in our earlier analysis, the election triggered an “outlier day”—defined as a +/-1.50% movement—with the S&P 500 surging 2.50% the day following the election. US markets maintained the upward momentum throughout November.
We noted previously that "there is no doubt that a Trump election brought positivity and optimism to the financial markets... While investors are optimistic, you should always proceed with caution." The critical question now: Can this rally sustain into 2025?
Investor Sentiment
Market gains gave investors reason for optimism this Thanksgiving, but sentiment data reveals a complex picture. The American Association of Individual Investors Sentiment Survey showed initial bullish sentiment near 50% post-election, but declined to end the month, finishing at 37%. Bearish sentiment had a net positive gain, finishing at 38%, a rise of +11% for the month.
This bearish sentiment shift may be a healthy development for a continued market rise. Investor sentiment typically acts as a contrarian indicator – peak optimism often precedes market tops, while pessimism frequently marks bottoms. The current mix of skepticism amid a rising market aligns with the adage that "bull markets climb a wall of worry.”
Sector Leadership
Canterbury's volatility-weighted-relative-strength (VWRS) rankings revealed notable shifts in November. This risk-adjusted metric combines relative strength and volatility to assess risk-adjusted sector performance.
A table displaying the rankings from the end of October and the end of November is posted below, along with some bulleted notes.
Source: Canterbury Investment Management. VWRS is a risk-adjusted relative strength metric.
Key Sector Movements:
1. Consumer Discretionary claimed the top rank in November, driven by Tesla's post-election surge and broad sector strength ahead of holiday shopping.
2. Communications maintained momentum, with T-Mobile (TMUS) leading the way. The stock reached new all-time highs, has gained over 50% year-to-date, and has significantly outpaced sector giants Meta and Google in the last six months.
3. Energy showed renewed strength with a 6% monthly gain, approaching its all-time high as it attempts to establish an upward trend. We wrote about Energy’s technical notes in an earlier commentary last month.
4. Healthcare remained the weakest performer, uniquely positioned below its 200-day moving average. Eli Lilly's (LLY) performance notably contributed to the sector's underperformance. We recently wrote some technical analysis on Lilly’s stock.
Be on the Lookout for Technology Stocks
The Information Technology sector is the most important S&P 500 sector, accounting for more than 30% of the index’s makeup. The second largest S&P 500 sector is Financials, representing only 13%. In other words, so goes technology, so goes the market.
In recent months, we have seen Information Technology rank near the bottom of our risk-adjusted sector ranks. We are keeping a close eye on the fluctuations of several large technology stocks, such as Apple, Nvidia, and Microsoft. These stocks have had some recent positive developments and could fuel the market higher if things play out correctly. Apple and Nvidia have established a series of higher lows and are now looking to breakout to new highs.
Coming Up Next
According to seasonal patterns, we have entered one of the most bullish times of the year, with markets often benefiting from holiday retail activity. However, recent years (2018, 2022) remind us that seasonal patterns aren't guaranteed.
Current market conditions show characteristically low volatility, typical of bull markets. Our Adaptive Portfolio is positioned accordingly with holdings including stocks such as T-Mobile, Blackstone, Paychex, Lowe’s, and others. It also holds positions in the Energy sector, which has risen in our relative strength ranking, as well as Information Technology.
International Weakness Continues
While the US markets have been strong following the election, international indexes have taken a punch. The EAFE index (Europe, Australia, Far East) fell -5% in October and was flat in November while domestic markets rose. The Emerging Markets index fell -3% in October and another -3% in November.
The weakness of international stocks post-election has benefited our risk-management positions. For risk management, our Adaptive portfolio currently holds two inverse securities. Inverse securities move in the opposite direction of their underlying index. Currently, these inverse positions are both international.
These positions are in lieu of owning bonds, which are in a bear market. Traditional portfolio management methods suggest owning bonds to limit portfolio fluctuations. Bond funds have declined significantly in value in recent years.
Final Thoughts
Portfolio management is an on-going, dynamic process. While favorable market conditions are in place today, that does not mean they will persist. Our Adaptive portfolio currently holds several equity positions, along with inverse international holdings. We will continue to do so until market conditions shift. While no one has a crystal ball, an adaptive portfolio will make adjustments as conditions change.
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