November 2020, Best......Month.....EVER!
That was easy. November delivered a "potential" transition of US presidential power and strong developments on the vaccine front. Optimism and liquidity drove equities to their best monthly returns ever.
Even “Perma-Bears” found joy in November's developments
E-mini S&P 500 futures gained 11%, 30-day volatility fell from 32.6% to 17%. E-mini Nasdaq 100 futures were up 11% as well while e-mini Russell 2000 futures returned 19%.
The US dollar fell and interestingly bond yields dropped, resulting in strong performance for risk premia strategies that are structurally long stocks and bonds. In commodities WTI Crude Oil futures returned 27%, Soybean futures rose by 11% and Gold futures fell by 5%
The notable and much hyped "great rotation" witnessed the Momentum factor violently reversing against the Value factor. Such a rotation is troublesome for hedged strategies, especially ones that do not mitigate factor risks. As we head into December opposing forces of a raging pandemic in the near-term and a potential end to the pandemic in the medium-term are causing some consolidation in the "great rotation".
Perhaps Bitcoin is one of the best global liquidity proxies as it gained 43% during the month, its volatility rising by 87% with 25 delta calls trading at a roughly 20% volatility premium to puts. Central banks are injecting $300 billion of liquidity into capital markets monthly. Like a wildfire, all the markets need is confidence in a pandemic resolution and the overflow of liquidity will do the rest.
Interestingly, even in Asia where the pandemic has eased, liquidity is running high.
Combine central bank and fiscal money printing with forced consumer savings due to a lack of mobility and the results are astounding. Developed market households are ending the year with robust balance sheets, and most likely little near-term visibility on when they will physically leave their household.
The euphoria of markets continues to disconnect from Main Street economic reality for many global citizens. Small business owners are particularly hard hit in 2020.
November was probably not the best month ever for many small business owners