Market Briefing

  • November 11, 2020

November 2020

After a relatively volatile month, stock prices posted a mixed finish for October. Indexes representing the larger capitalization segment of the market ended down for the month while mid and small capitalization indexes advanced. The daily pulse of recovery stimulus spending negotiations in Washington translated to big swings in both directions. Late in the month, hope ultimately faded that a deal would be completed before election day and the equity markets sold off. There was some positive economic news during the month. Manufacturing and services sector indicators continued to show expansion for September. Retail sales, housing starts and durable goods orders were all higher as well. However, a significant uptick in Covid-19 cases weighed negatively on stocks. Investors favored value stocks in October. Stocks selection factors such as p/e ratio, price/book value, peg ratio and price/value ratio were among the top performers for the month. In addition, small and midcap and lower quality stocks outperformed larger cap, high quality stocks. Growth and momentum stocks underperformed as evidenced by projected growth rate, price momentum measures, and sales and earnings momentum factors appearing near the bottom of the performance listing. Roughly half of the industry groups we track had positive average price gains in October. Some of the better performing groups were in the financial and materials sectors. Among these were banks, savings & loans, copper, aluminum and steel. Among the weakest performing groups for the month were certain retailers including department stores and drug stores. Oil related groups and coal posted another down month

Value of the Market

The S&P 500 index decreased 3.9% in September. The price drop countered by a decline in The S&P 500 index decreased 2.8% in October. The price drop along with unchanged interest rates caused the aggregate PVA for the index to end lower for the month. Based on current earnings, expected growth, and current interest rates, the aggregate pva for the S&P 500 remains below the 1.0 fair value level. The aggregate price to intrinsic value is also below its 10-year average level.
The S&P Midcap 400 Index rose 2.1% in October. The higher index value along with unchanged long term interest rates caused the aggregate price to intrinsic value for the index to rise for the month. Based on current earnings, expected growth, and current interest rates, the S&P Midcap 400 Index is below the 1.0 fairly valued PVA level.  In addition, the average PVA for the index remains below its mean level of the last 10 years.
The Smallcap 600 Index increased by 2.5% in October. The price rise along with no change in long term interest rates caused the aggregate price to intrinsic value for the Smallcap 600 index to end higher for the month. Based on current earnings, expected growth, and current interest rates, the S&P Smallcap 600 Index is below the 1.0 fairly valued level. In addition, the aggregate index PVA is nearly one standard deviation below its 10-year average level. 

Source: Ford Equity Research