Market Briefing

December 2020

Stocks powered higher in November with smaller capitalization stocks leading the way. Indexes representing small caps outpaced the mid and large caps for the month. The news of effectiveness of coronavirus vaccines was the primary driver of the market advance. Gains were also helped by some strong economic news and U.S. election results that were viewed as positive for the market. The ISM manufacturing index for October indicated expansion that exceeded forecasts. The services index also showed expansion for October, albeit below the forecasted level. Retail sales increased slightly, and the housing market continued to show strength. Amidst the positive outlook, an uptick in Covid-19 cases and potential resulting lockdowns produced some mid-month declines. Investors continued to favor value stocks in November. Stocks selection factors such as price/sales ratio, p/e ratio, price/cash flow and price/book value were among the top performers for the month. In addition, small and midcap and lower quality stocks continued outperformance over larger cap, high quality stocks. Likewise, growth and momentum stocks had a follow-on month of underperformance as seen by 1-year eps growth rate, sales momentum, and value/momentum factors appearing near the bottom of the performance listing. The breadth of the rally produced positive average price gains for all the industry groups that we track. Notable among the better performing groups were those in the oil sector, publishing, broadcasting and auto related. Among these were banks, savings & loans, copper, aluminum and steel. Among the relatively weaker performers for the month were food producers, utilities, trucking and railroads.

Value of the Market

The S&P 500 index increased 10.8% in November. The price rise along countered by a decline in interest rates caused the aggregate PVA for the index to end higher 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 toThe S&P Midcap 400 Index rose 14.1% in November. The higher index value countered by a decline in 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 18.0% in November. The price rise countered by a decline 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 below its 10-year average level.

Source: Ford Equity Research

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