Small-caps just keep on driving this market higher inspired by multiple positive COVID vaccine trial results and the corresponding economic recovery that is expected to follow. International developed market stocks still look to be in pretty good shape, but I’m wondering if this rally is reaching its final legs. Emerging markets indices are up just over 10% in November, but the ex-China index is up nearly 16%.
It’s clear that investors are in a pretty good mood here and some of the more cautious market signals may finally be capitulating. From a macro standpoint, however, there are some challenges ahead. Over the past couple of weeks, European emerging markets, mostly Russia and Poland, have risen sharply, but China continues to be a drag on the broader averages.
Part of the reason that utilities are doing well could be the re-emergence of the value trade. Asia markets, including Japan, had a relatively muted reaction, but European equities more than cheered the vaccine news. Emerging markets gains overall are being muted by a pullback in Chinese equities, where investors have decided to digest the gains from the recent rally and rotate into more beaten down areas of the market.