November is typically a strong month for stocks. Therefore, we are positioned for seasonal upside in cyclical/value sectors based on historical returns. Consumer discretionary, transports, materials, and even clean energy tend to produce positive returns into year-end.
On the macro front, we are monitoring the flattening yield curve, which means market participants are starting to position ahead of tighter monetary policy and slower economic growth. Stagflation (slow growth and inflation) remains a headwind for risk assets, which could cause some volatility in January. This scenario confirms our preference for value sectors, which are less sensitive to rising inflation, versus growth sectors (mainly tech).
For now, the S&P 500 is in breakout mode and we expect pullbacks to be limited. More stocks are trending upward, which suggests the rally is broadening, especially within small-caps.
Percent of months SPY closed positive (2002-2021)
Source: Cannon Advisors, StockCharts data
S&P 500 breakout
Source: Cannon Advisors, TradingView data