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Stock Superstars Report: November Recap & December Portfolio Changes

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This week we performed our monthly Stock Superstars Report (SSR) portfolio review and made some changes. For more information on this month’s deletions and additions, read the December SSR Monthly Report available online.

November Market Recap

In the aftermath of the U.S. presidential election, U.S. stocks, for the most part, have rallied strongly. This is quite the turnaround from the evening of November 8, when Dow futures initially plunged 750 points—implying a more than 4% drop in the industrial average—as returns began pointing toward the eventual surprise victory of Donald Trump over Hillary Clinton.

Since the close on November 8, the S&P 500 index has gained 2.8% through month end. The “Trump Bump” has spread to a number of sectors as well. Since the close on Election Day, seven of the 10 S&P Select Sectors ETFs are up through November 30. The three that are down over that period are Utilities (XLU: -4.9%), Consumer Staples (XLP: -4.0%) and Real Estate (XLRE: -2.2%). Utilities and REITs (real estate investment trusts) had been popular sources of steady income in the current ultra-low interest rate environment, but have seen their popularity wane on the prospects of higher interest rates. Anecdotal evidence points to worries over trade as a primary reason for the recent decline in the consumer staples industry.

On the flip side, the best-performing S&P Select Sectors ETFs since the election through November 30, have been Financials (XLF: +12.6%), Industrials (XLI: +7.2%) and Materials (XLB: +5.7%). Financial firms have seen their share prices rise since the election on expectations of higher growth and interest rates.

As of the afternoon of Friday, December 2, the CME Group’s FedWatch Tool pegged the likelihood of a December interest rate hike at 97.2%, up from 92.7% the day before.

Bank stocks have also risen on the likelihood of reduced regulation from a Trump administration.

Furthermore, infrastructure and transportation firms have also been on the rise since Election Day, based on promises Trump made on the campaign trail to rebuild America’s roads and bridges. Industrial firms have received a boost from comments Trump made during his campaign, namely his call for a $1 trillion investment in infrastructure over a 10-year period.

In contrast to last month, small-cap value stocks had the strongest showing in November, as the iShares S&P SmallCap 600 Value ETF (IJS) jumped 13.3% through November 30. On the other end of the spectrum, large-cap growth stocks fared relatively poorly, as the iShares S&P 500 Growth ETF (IVW) managed only a 1.2% gain. Year-to-date, value widened its lead across all market-cap segments: iShares S&P 500 SmallCap 600 Value added 25.9%, iShares S&P Mid-Cap 400 Value (IJJ) gained 22.2% and iShares S&P 500 Value (IVE) was up 12.3%.

For November, the SSR tracking portfolio gained 6.5%, making it the portfolio’s best month since July 2013. Breadth, a measure of the overall direction of a group of stocks, turned sharply positive this month, as only six of the 36 stocks in the SSR tracking portfolio were down month to date through November 29.

For 2016 year-to-date, through the close on Friday, December 2, the SSR tracking portfolio has gained 12.0%, while the iShares DJ U.S. ETF (IYY) is up 9.6%. Since inception, the SSR portfolio has gained 213.1%, while the iShares DJ U.S. fund is up 167.4%.

Given all the uncertainty regarding a Trump presidency, it makes more sense to stick to a long-term plan that’s not based on politics. Certain stock characteristics have been shown to work over the long term regardless of who is living at the White House, including value, momentum, earnings estimate revisions and quality. These are among the characteristics sought out by SSR’s strategy. Thus, while we can’t give an economic forecast, we do feel comfortable that we have the right strategy for succeeding over the long term regardless of how the political environment in Washington evolves.

Wayne A. Thorp, CFA
Senior Financial Analyst, AAII
SSR Investment Committee

Click here for news on the current SSR holdings and weekly performance data.

The Stock Superstars Report (SSR) publication was developed to educate individual investors on how to build a stock portfolio using a mix of strategies. The SSR is designed to provide all the information you need to manage a stock portfolio as well as to teach you about timely investment principles relating to the SSR portfolio and stock investing in general.

 

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