November Size and Style Update

Written by Alex Shen, CFA and Andy Pratt, CFA on .

Value stocks turned back in favor in November as the Senate passed a tax bill proposing lower corporate taxes and more favorable tax treatment to income earned abroad. Companies in Value oriented sectors, like Consumer Staples and Financials, tend to pay higher tax rates than companies in Growth oriented sectors, like Information Technology, and, as a result, stand to benefit most from corporate tax reform. Despite this, Growth stocks have still outperformed year-to-date and remain the long-term trend.

Companies in the Information Technology sector are far ahead of all other sectors year-to-date even after lagging in November. Occasional slowdowns and pullbacks are healthy during a rally to keep valuations in line. It has been quite a year for stocks across most sectors as five sectors have produced 20% or more in year-to-date returns while two others, Industrials and Utilities, are close.

How restrained has volatility been in the stock market lately? Stock volatility dropped below that of bonds for the first time ever this year.  This is truly remarkable and something stock investors should enjoy while it lasts, because it cannot last forever.