B10| Tuesday, December 1, 2020 **** THE WALL STREET JOURNAL.
MARKETS
vestment officer of BNY Mel-
lon’s Lockwood Advisors,
which manages $8.8 billion.
“It’s somewhat encouraging to
see it broaden out, and you
would expect that to continue,
really, particularly if the mar-
kets begin to believe that
there’s legs to the economic
recovery.”
A prime example of the cy-
clical comeback: The S&P
500’s downtrodden energy
sector, pinched by low oil
prices and economic slow-
down, ended October down
more than 50% for the year. It
has since jumped 27% in its
best month since April, ac-
cording to Dow Jones Market
Data.
The financials group, which
has lagged behind the broad
market as low interest rates
hurt banks’ business, gained
17% for its best month since
April 2009.Morgan Stanley
andGoldman Sachs Group
Inc. rose more than 20% for
the month, while energy com-
paniesOccidental Petroleum
Corp. andDiamondback En-
ergyInc. bounced back more
than 50% in November.
“We not only have a pretty
positive little period going on
for stocks right now, but we
have a positive period that’s
not just simply Amazon and
Microsoft,” said David
Bahnsen, chief investment of-
ficer at wealth management
firm Bahnsen Group.
The technology sector is
the year’s top-performing
group but barely beat the mar-
ket in November, while mega-
cap growth stocksAppleInc.,
Microsoft Corp. and Ama-
zon.comInc. lagged. Still, all
three are up more than 35%
for the year and because of
their large market values have
exerted a forceful upward pull
on the S&P 500.
Fast-moving technology
stocks were already popular
with investors seeking gains in
a low-growth environment
when the pandemic suddenly
reshaped the economy, push-
ing more work and commerce
online as many people stayed
home.
Through Nov. 20, the tech-
nology sector contributed
three-quarters of the S&P
500’s total return for 2020, ac-
cording to Howard Silverblatt,
senior index analyst at S&P
Dow Jones Indices. Without
the contributions of 11 large
stocks, mostly tech names, the
index’s total return through
that date would be negative
for the year, he calculated.
Some investors have wor-
ried that a market propped up
by a handful of stocks—and a
group that has grown increas-
ingly expensive—could be vul-
nerable to sudden reversals.
The information technology
sector traded late last week at
29.10 times its earnings over
the past 12 months, above the
five-year average of 19.47, ac-
cording to FactSet. The finan-
cials group, by contrast,
traded at 16.63 times earnings,
Continued from page B1
AUCTION RESULTS
Here are the results of Monday's Treasury auctions.
All bids are awarded at a single price at the market-
clearing yield. Ratesare determined by the difference
between that priceand the face value.13-Week 26-Week
Applications $166,363,481,300 $170,653,102,700
Accepted bids $61,919,742,200 $58,479,641,200
" noncomp $624,431,800 $367,148,300
" foreign noncomp $404,000,000 $200,000,000
Auction price (rate) 99.978514 99.954500
(0.085%) (0.090%)
0.086% 0.091%
Bids at clearing yield accepted 38.11% 78.89%
9127964F3 912796A41
Both issues are dated Dec. 3, 2020. The 13-week bills
mature on March 4, 2021; the 26-week bills mature on
June 3, 2021.compared with an average of
13.98.
“As we head into the end of
the year, investors are looking
for some of the stocks that
have lagged the recent rally
and maybe are trading at more
attractive valuations,” said Mi-
chael Sheldon, chief invest-
ment officer at investment ad-
visory firm RDM Financial
Group.
RDM recently bought
shares of an exchange-traded
fund tracking the equal-weight
S&P 500, he said. Whereas the
S&P 500 weights stocks ac-
cording to market value, giv-
ing larger companies more
sway over index performance,
the equal-weight version as-
signs the same level of repre-
sentation to each firm. This ef-
fectively de-emphasizes the
technology sector while plac-
ing more importance than the
traditional S&P 500 on groups
like financials, industrials and
energy.
“Essentially you’re buying
some of the areas that are
likely to benefit from an eco-
nomic rebound and...you’re
owning a little bit less of the
areas of the market that have
already done very well,” Mr.
Sheldon said.
The S&P 500 is outperform-
ing the equal-weight index by
5.97 percentage points in
2020, on pace for the largest
yearly divergence since 2010,
when the equal-weight version
led, though the 2020 gap has
narrowed since the end of Oc-
tober, according to Dow Jones
Market Data.
In another measure of the
market’s upward sweep, the
proportion of S&P 500 constit-
uents trading above their 200-
day moving average last week
hit its highest level—91%—
since July 2013, according to
Dow Jones Market Data and
FactSet. As recently as Oct. 30,
only 58% were above the mov-
ing average.
The rally has been bol-
stered by corporate earnings
that have been better than ex-
pected across sectors. With
nearly all S&P 500 companies
reporting, analysts are pro-
jecting third-quarter profits
fell 6% from a year earlier, ac-
cording to FactSet, a marked
improvement from the 21% de-
cline forecast at the end of
September. Earnings are ex-
pected to begin growing year-
over-year again in 2021.
The market broadening
hasn’t been limited to shares
of large companies. The Rus-
sell 2000 index of small stocks
left the S&P 500 behind in No-
vember with a gain of 18%, its
best monthly gain.
The recent advance has
narrowed the 2020 perfor-
mance gap between the in-
dexes, with the S&P 500 up
12% and the Russell 2000 up
9.1%.
“Since Halloween it’s been a
different story,” said Mariann
Montagne, portfolio manager
at Gradient Investments, not-
ing the small-cap gauge’s re-
cent outperformance of big
tech stocks. “I believe that’s
because we’re looking at a re-
covery in the market and in
the economy, and small-caps
tend to lead in recoveries.”Stock Rally
Finally
Broadens
STREETWISE|By James Mackintosh
Market Expects Everything Will Be Super
Rarely have
investors had
better reason
to be optimis-
tic. Vaccines
are imminent,
the economy’s doing well and
money has never been
cheaper.
After an awful year, things
are finally looking up.
The trouble is that invest-
ing involves not just predict-
ing the future—golden!—but
comparing it to what is al-
ready priced in. If everyone
already expects everything to
be great, and it turns out
that way, there is no particu-
lar reason for asset prices to
change.
And at the moment, it
seems that everyone already
expects everything to be re-
ally fantastic.
Start with the stock mar-
ket. Monday’s decline only
partially reversed Novem-
ber’s huge gains for the
beaten-up stocks that were
victims of lockdowns, while
mutual funds are no longer
sitting on big piles of cash.S
entiment has flipped
from bearish to bullish:
At the start of October
43% of those taking part in
the self-selecting American
Association of Individual In-
vestors survey were bearish,
and 26% bullish. Now, 47%
are bullish and 27% bearish.
Investor newsletters are
reflecting the zeitgeist, with
Investors Intelligence’s long-running survey finding al-
most two-thirds are bullish,
the most since January
2018—just before volatility
exploded and stocks fell
sharply.
Just how little skewed the
outlook is shows up in op-
tions markets, where the use
of put options to protect
against equity losses is heav-
ily outweighed by the call op-
tions that make money when
the market rises. The ratio of
the two is among the lowest
levels since the dot-com bub-
ble of 2000, as worries about
a selloff recede.
This reflects big improve-
ments expected in profits.
Wall Street analysts are over-
whelmingly upgrading their
outlooks, with two-thirds ofchanged forecasts for S&P
500 member companies over
the past four weeks being up-
grades. The proportion was
slightly higher in the summer
as analysts marked back up
forecasts that had been
slashed in March, but other-
wise is the highest since the
bullishness of January 2018.
Everything is awesome.
Again.
Credit markets are telling
a similar story. The fear that
dominated in March has
given way to greed, and even
the junkiest of junk bonds are
priced for a decent recovery.
U.S. corporate bonds rated
CCC offer a yield pickup, or
spread, above safe Treasurys
that is lower than before the
pandemic; investors thinkthat most of those companies
that are going to go bust al-
ready have.
Broader measures of junk
bonds still have spreads
above where they started the
year, but are already back to
where they stood in the sum-
mer of last year. The vast ex-
tra debt piled on this year
doesn’t seem to bother inves-
tors.N
one of this means
markets are bound to
fall a lot. Sentiment
can always get more positive;
no matter how extended
prices are, they can always
become more stretched. And
the stocks that have been ris-
ing the most in the past few
weeks—banks, travel and oilcompanies particularly—are
in the main still well below
where they were before the
pandemic.
Even when optimism
seemed very high in the past,
its waning sometimes
brought merely a period of
market consolidation rather
than a big fall. That might be
all that happened in Mon-
day’s pullback, when the big-
gest gainers in November
tended to become the biggest
fallers on the day, and vice
versa.
But the more everyone ex-
pects really good news, the
harder it becomes to beat ex-
pectations. Markets aren’t
quite priced for perfection,
but they are leaving little
margin for safety.Vaccine news
bolstered hopes for
industries suffering
under the pandemic.
Chips manufactured by SMIC are on display at China’s International Semiconductor Expo in Shanghai in October.LONG WEI/VCG/GETTY IMAGESOne risk for stocks in the
coming months stems from ex-
uberance among individual in-
vestors, said Trevor Greetham,
head of multi asset at Royal
London Asset Management,
pointing to surveys by the
American Association of Indi-
vidual Investors. Still, the U.K.
asset manager is betting that a
revival in economic activity
will continue to buoy stock
prices in 2021.
The prospect of vaccines of-
fers “some light at the end of
the tunnel as an investor,” Mr.
Greetham said. “If you’re buy-
ing stocks, you’re not just as-
sessing the next month or
two—you’re assessing the next
20 years.”
In Asia, investors were rat-
tled by a Reuters report that
the Trump administration is
poised to add oil producer
Cnoocand chip makerSemi-
conductor Manufacturing In-
ternationalto a blacklist of al-
leged Chinese military
companies. Cnooc shares tum-
bled 14% in Hong Kong, while
SMIC’s Hong Kong-listed stock
fell 2.7%. Most major marketsin the region ended lower.
Hong Kong’s Hang Seng Index
lost 2.1%, Japan’s Nikkei 225
retreated 0.8% and the Shang-
hai Composite Index lost 0.5%.
Markets are concerned
about more restrictions from
the U.S. on investing in Chinese
companies, according to Steven
Leung, executive director of in-
stitutional sales at UOB KayHian in Hong Kong.
Asian markets rebounded
early Tuesday. The Nikkei was
up 1.5%, the Hang Seng was up
0.7% and the Shanghai Com-
posite was up 0.8%. U.S. stock
futures were up 0.9%.
Banks and energy producers
dropped in Europe on Monday,
weighing on the Stoxx Europe
600, which finished down 1%.BNP Paribas Asset Management.
“We should, for the most part,
move up between now and the
end of the year, with a chance
for a setback here or there.
Shares of
drugmaker
Moderna
jumped $25.71,
or 20%, to $152.74 after it said
it would ask U.S. and European
health regulators to authorize
the use of the company’s
Covid-19 vaccine.
IHS Markitrose $6.88, or
7.4%, to $99.46 after the data
provider said it would combine
withS&P Globalin a deal that
values IHS Markit at $44 bil-
lion, including debt. The all-
stock deal is the largest of the
year.Continued from page B1Dow Caps
Top Month
Since 1987
MONDAY’S
MARKETSbank balance sheets and ques-
tions about whether it will or
won’t cause inflation,” said So-
ciété Générale forex strategist
Kit Juckes. “It’s another benefi-
ciary of the collapse in real
yields.”
Trading volume for bitcoinhas surged in the past few
months, to $50 billion a day
from around $18 billion a day
in September, according to data
from research site Coingecko.
Other cryptocurrencies ben-
efited from the interest as well.
Ether is up 370% this year. XRPis up more than 234%.
Bitcoin’s gains have been
fueled by both retail and pro-
fessional investors, and a pleth-
ora of platforms that make it
easy to trade cryptocurrencies.
—Anna Hirtenstein
contributed to this article.Bitcoin surged on Monday to
set its first fresh record in
nearly three years, driven by a
wave of new investors lured by
the potential for big profits.
The digital currency rose as
high as $19,834.93, according to
CoinDesk, topping the previous
intraday record of $19,783.21
set Dec. 18, 2017. Bitcoin has
nearly tripled in 2020 and is up
more than 90% since early Sep-
tember. It closed Monday at
$19376.18, up 6.1%.
The surge comes amid a
wider rally across markets. The
Federal Reserve and other cen-
tral banks injected trillions
worth of liquidity into the capi-
tal markets, and a number of
companies working on corona-
virus vaccines are providing
hope that the global pandemic
will soon be brought under
control.
With safe assets like govern-
ment bonds yielding close to
zero, investors have been more
willing to place bets on risky
assets in hopes of reaping big
gains, and bitcoin is among the
riskiest assets in the capital
markets.
“You have the weakened dol-
lar, enormous growth of centralBYPAULVIGNABitcoin Price Sets New Intraday Record
The digital currency’s gains have been fueled by both retail and professional investors.ARTUR WIDAK/NURPHOTO/GETTY IMAGESNovember
s12%Dow Jones Industrial Average, monthly changeSource: FactSet15–25–20–15–10–50510%1987 ’90 2000 ’10 ’20