November 2020 Stock Prices

Victor Levinson Comments

During November, stock prices in the US and internationally made significant gains, which took the three primary US indexes to new all-time highs. Since the March 23, 2000 lows of 2,237 for the S&P 500, 18,591 for the Dow Industrials, and 6,860 for the NASDAQ Composite, the three indexes closed November at 3,622; 29,639; and 12,199, respectively. The percentage gains have been 62%, 59.4%, and 77.8% respectively.

Our usual response to changing stock prices is to take the position that no one really knows the reasons why, even after the fact. There are simply too many countervailing factors impacting the direction and extent of stock price changes. That said, given gains of this magnitude in a relatively short time frame, we thought it would be helpful to set out and discuss some of the more likely current factors being discussed in the financial media.

  • The continuing extreme negative impacts of Coivd-19 on the health, welfare and economic situation in the US and globally. For stock prices to rise so significantly for much of this period should indicate some more than offsetting positive news. The potential discovery and widespread distribution and administration of a vaccine against the virus Is one such possibility. But even if the end of the virus were clearly in sight (which is not the case now), stock prices at end-of-November levels would be anticipating an extremely rapid return to normalcy or even better than normalcy. Keep in mind that over the longer term, which should be the focus of investors (as compared to short-term trading), the main drivers of stock prices are the economic growth of the world’s economies, the future increasing profitability of the businesses that make up the investable markets, and their associated P/E multiples. Whether the kind of recovery being reflected in current stock prices is on the horizon is a true unknown, given the unpredictability of the future.
  • The stock price recovery being fueled in part by some number of very large companies benefiting financially from recent economic conditions (e.g., closures of offices and retail businesses). This might explain the extreme price gains of the large technology companies and the NASDAQ out-performance.
  • The activities of short-term traders, many possibly new to the financial markets, with a bias towards the upside. However, it would probably be very hard to verify such a bias.
  • The extremely low interest rates offered to investors, which make bonds a less than attractive place for positive future investment returns and stocks a more enticing alternative. These low rates have been providing support for both stock and bond prices for some time. While they might explain some of the recent gains since March, there did not seem to be any new news here to account for November’s outsized monthly gain.

A recent New York Times article cited in last month’s Comments discussing bonds (NYT 10/11/20, page BU11), puts the current situation this way: “Owning US Treasuries, the undisputed safest bond, means signing on for next to nothing in earnings for the next five to ten years, because the current yield of a bond is a solid estimate of future annual returns, and Treasuries that mature in ten years or less currently have yields below one percent… While the historical long term average annual return for intermediate-term Treasuries is 4.5%, based on current yields, a return below 2% is more likely… And that’s before factoring in inflation, running currently at 1.3%.”

  • Low interest rates as a stimulant to the economy. These very low rates have made it easier for all bond issuers to borrow. Particularly in the case of US and state and local governments, the low rates have allowed for more borrowing with less concern for harmful inflation, at least in the short term, until steady signs appear of an economic recovery from Covid-19. (See our October 2020 Comments).
  • Political Uncertainty/ Election Results. One piece of new news in November was the election results. Even though President Trump is still protesting and not conceding, it would appear most of the country and the world are assuming a Biden presidency starting towards the end of January. As our regular readers are aware, even if we know the election results, there is nothing inherently predictive about the impact on market prices, certainly not as time passes and other intervening events become more important.


Our advice remains the same: maintain asset allocations developed for your circumstances for the long-term, and review the allocations from time to time, with an eye towards rebalancing, based on significant changes in market prices and/or changes in your personal circumstances. Rebalancing means selling the better performing asset class and buying the weaker performer in a given timeframe.