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eading into November, investor sentiment was particularly dour related to election uncertainties and accelerating COVID-19 cases. However, the month proved to be one of the best ever for global equities. The election was not seamless but was less chaotic than feared. A divided government was immediately cheered by markets. Soon after, stocks received another significant boost from a string of extremely encouraging vaccine test results.Investors Look Toward Post-Pandemic Economy
With the end of the pandemic seeming closer and more tangible, money flowed out of the so-called “stay at home” trade and into physical economy stocks. Small cap and international shares posted outsized returns. We believe economic restrictions from COVID-19 will likely be gone by the second half of 2021 but may intensify in the short term. How much behavioral change from the pandemic becomes permanent is impossible to know. The acceleration of the digitalization of the economy will not reverse, but that does not preclude sectors outside of tech and communications from outperforming. The world has changed, as have valuations and priced-in expectations across the equity markets.
Small and value stocks have now been leading highly priced growth issues since the end of August. The trend accelerated in November, but it would be premature to say the most popular and highly priced tech stocks will retreat or take a back seat for an extended period. Some parts of the market continue to look quite frothy, in our view, and we continue to believe style and regional diversification remain at elevated importance.