The big November, alternative reality, and forward expectations

Simple question, if you were given the following information at the beginning of November what would have been your expectations for monthly returns? 

• Change in US leadership; however not a mandate and issues of election confirmations.
• COVID cases rising in US and rest of the world - a big new wave. 
• COVID vaccines developed from three different companies, but unclear when they would be distributed.
• No new fiscal package and the same monetary policy.

This is a game that should always be played by forecasters. Assume you are given perfect foresight of the news, then determine the price action. The expected results do not often match reality. In this case, uncertainty has been put aside and strong equity rotation suggests that investors are expecting a good post-vaccine world.

The SPX gained 10.95 percent, but there were more interesting equity dynamics for November. The equal-weighted SPX gained 14.30 percent and the S&P small cap 600 increased 18.17 percent. Value outperformed growth by over 300 bps with a monthly return of 12.88 percent. 

The strong benchmark gains have masked the significant rotation to value and size over growth and momentum. Of course, this is all relative because the supposed out of favor long-only factors still generated positive monthly returns. However, looking at long/short factors show significant declines for momentum, quality, and volatility factor portfolios. The worst names (shorts) saw significant rallies.

Another rotational shift will come from the increased dispersion in equities. More dispersion means there are more opportunities for stock pickers, active managers. An overweight to the high cap tech names may be ending with the signs of a new normality. Value and size needed a catalyst and that may be present through a shot in the arm.