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Following a challenging October, the global equity markets staged a strong recovery in November. While COVID cases surged in the US at an alarming rate following similar spikes in Europe, news of effective vaccines provided a boost to the market as investors began to look forward to a future when life could return to normal. Optimism also grew as election uncertainty diminished and President-elect Biden’s administration started to take shape.

In this month’s Key Investment Perspective, we take a close look at developments in major markets and asset classes. In addition, our Research Insights segment addresses important concepts in our dynamic investment environment, including:

  • The value of staying invested with a well-thought-out asset allocation strategy.
  • How disciplined portfolio practices can help investors rebalance risk assets, align allocations with risk tolerances, take advantage of tax-loss harvesting, and incorporate nontraditional investments into the asset mix.
  • The role that goals-based financial planning can play in providing investors with expanded tools to create an optimal asset allocation mix to meet their goals.

Key Takeaways

  • Global Equities: The rally in equities began with the S&P 500 Index advancing 11% during the first two weeks of November even as coronavirus cases soared. New milestones were achieved as both global and small cap stocks had their best month ever. The breadth of the market continued to improve as more sectors joined the rally, a healthy sign for future returns.
  • Fixed Income: Fixed Income returns were positive across the board in November. Credit spreads continued to narrow, a signal of investor optimism and confidence. Longer-term investment-grade credit was the best performer in the month, returning 5.1%.
  • Alternatives: Energy-related commodities soared as economic conditions improved. Other commodity sectors were mixed. Publicly traded real estate investment trusts (REITs) posted solid gains, while hedge fund returns were positive across all core sub-strategies.
  • Tactical Allocation: We recommend a slight overweight to equities relative to bonds and encourage investors to consider adding exposure to non-US equities. Within fixed income, we prefer investment-grade corporate and high-quality municipal bonds over US Treasuries and remain in favor of a modest allocation to high-yielding, opportunistic fixed income strategies. An allocation to alternative strategies can provide diversification benefits for the right clients.