Monthly Market Update: 
Recap of November 2020

We are on the homestretch of 2020. The markets are not only positive for the year, they are hitting record highs while the pandemic is also seeing a winter surge. I hope each of you had a wonderful Thanksgiving and are in the holiday spirit as we enter into December.

I’m Eric Powell with RightPlan Financial. Let’s look at why November was the best month for the Dow since 1987, what to expect during December and what we are doing for client portfolios. Beware, this video does get a bit into teaching of what exactly we are doing with portfolios and how it all works. I saved that information until the end of the video for those who want to stick around and enjoy the details.

The month of November for the stock market would best be described as a rocket. Major US indices did not just go up, we saw them hitting new record highs and the Dow, sticking with rocket terminology, it soared. Ok, that was corny. Let’s look at the numbers. For November, the S&P 500 was +10.95%, the Dow Jones Industrial Average +12.14%, Nasdaq +11.91%, MSCI EAFE +15.5%, MSCI Emerging Markets +9.25%, Barclays US Aggregate Bond +0.98%, Barclays US Corporate High Yield +3.96% and Barclays Municipal +1.51%.

To answer the question everyone wants to know…. Why did the stock market produce these kinds of numbers? I will make it simple and describe the reason in one word: Vaccine.

The positive news of a vaccine and hope that it can be administered quickly has given stocks that were struggling, a big boost. When the virus downturn started in February, investors flocked to safer options such as cash and treasury bonds. As the lockdown continued, investors began taking advantage of stocks belonging to companies that were in high demand during the lock down. The majority of the stocks that were in high demand were tech stocks, such as Zoom and Netflix, which explains why the Nasdaq has dominated in regard to stock market performance during 2020.

This was the breakdown of the 2020 stock market until November. With hopes of the vaccine being administered quickly, stocks that had been beaten down in 2020 saw a jump and investors are showing optimism for pandemic ridden stocks.

Going into December, the stock market has historically been positive 73% of the time. That said, this year has been far from the norm, though the continued possibility of a stimulus package and vaccine optimism could help drive the market further positive, though any negative vaccine news could rapidly create a sell off. As we did in late February and March, the key is to stay in the market for the long haul and never try to time the market regardless of what the media reports.

Now for what we are doing for client portfolios. I will be going into quite a bit of detail, so if the nerdy stuff bores you, no worries, but if you like this stuff, put on your thinking cap and here we go!

While our portfolios are primarily invested based on an investment strategy known as asset allocation and we focus on diversification, our tech holdings have been a bit more of the “pie” than our other investments this year. This was a positive for portfolios because as I previously mentioned, tech stocks carried us during the year due to the virus. To explain the strategy of the terms asset allocation and diversification, think of your portfolio as being a pie with a mix of stocks and bonds in multiple industries, as well as some cash. When stocks in specific industries such as tech do better than other slices of pie in the portfolio, their piece of the pie gets larger, while industries who are not doing well, tend to see their piece of the pie shrink. Our pie already had a large slice of tech and with their great performance this year, the tech piece of pie was getting too big. To be more specific, when a stock grows, that piece of the pie grows and when a stock goes down, that piece of the pie shrinks. With the pie, the ultimate goal is to keep slices from getting too big, because too big of a piece of pie increases portfolio risk due to the lack of diversification. When the pieces grow too big and others shrink, we must balance the pie and get it back to where it should be to reduce risk. To balance the pie, we do what is called a rebalance. This takes the stocks that have done well, allows us to sell them high. We then even out the pie buying stocks that have not performed as well, which would be buying low. I’m sure you have heard the saying, buy low and sell high. This allows us to do just that when we rebalance. At the end of October and going into November, we rebalanced portfolios which brought portfolios back to where they need to be and it also allowed a part of the big piece of tech pie to be shifted to other industries who had been beat up prior to November. This rebalance allowed us to be right on track with the November boom of the Dow and S&P 500.

This can be a bit confusing and you do not need to know any of this if you would rather not, I just wanted to share to give you a bit of the behind the scenes of what we are doing for your portfolios and why we do those things.

It is hard to believe this is the final market update of 2020. As we wrap up what has been one of the most challenging years for many of us, I personally want to thank you for allowing myself and RightPlan Financial to manage your investments. I hope that you all have a wonderful Christmas, Hanukkah, Kwanzaa or however you celebrate this season. May your 2020 be finished with hope and cheer and your 2021 be your best year.