The Bottom Line: A broad-based post-election stock market rally produced the best monthly returns so far this year for stocks, but valuations may be stretched.
Post-election stock market rally produced the best monthly returns so far this year for stocks
November’s U.S. presidential election, which had been too-close to-call, resulted in a clear victory for Donald Trump and Republican majorities in both the Senate and the House of Representatives. The election outcomes ignited a broad-based post-election stock market rally that produced the best monthly return so far this year for stocks. The markets seemed to pull back a bit by mid-month only to regain its momentum heading toward month-end, supported by Nvidia’s strong third quarter 2025 earnings report, robust gains in sectors tied to broader economic growth and hints at further rate cuts by the Federal Reserve. The S&P 500 added 5.9% on a total return basis and in the process, posted six new closing highs in November, reaching a high of 6,032.38 on the last trading day of the month. Market sentiment remains very positive, but the index is now trading at a stretched PE of 25.79 X estimated 2024 earnings. The Dow Jones Industrial Average (DJIA), which posted seven new closing highs in November, also ended the month with a closing high of 44,910.65. The DJIA gained 7.7% while the Nasdaq 100 posted an increase of 5.3%. Consumer Discretionary, Financials and Industrial sectors led across large cap stocks, but Energy, Financials and Consumer Staples sectors led among mid-cap stocks and Industrials, Materials and Financials led small-cap stocks. Small and mid-cap growth indices were some of the best performers in November, with the Russell Mid Cap Growth Index and Russell 2000 Index posting very strong gains of 13.3% and 12.3%, respectively. The Russell 2000 registered its best monthly gain since December 2023, adding almost 11% and recording a gain of 21.6% over the trailing 12-months versus an increase of 29.1% for the S&P 500.
International equity indices moved in the opposite direction in November
International equity indices moved in the opposite direction. The MSCI ACWI ex USA gave up 0.91% in November but maintained a positive result since the start of the year with a gain of 8.34%. This reflected the drag of emerging markets that posted a decline of 3.59% according to the MSCI Emerging Markets Index—driven by drops recorded in Brazil (-7.1%), Korea (-5.7%) and China (-4.4%). At the same time, against a backdrop of flagging growth in Europe, the developed markets MSCI EAFE Index managed to limit its decline to 0.57% and a year-to-date drop of 6.24% even as France dropped 4.2%.
The Federal Reserve is expected to cut interest rates by 25 basis points before year-end
Inflation remains above the Federal Reserve’s 2% target, and recent data shows that it is still a thorn. Nevertheless, the Federal Reserve, based on CME probability figures, is expected to cut interest rates by 25 bps at the scheduled December 17-18 meeting, despite a slight increase in inflation in November. However, persistent price pressures may lead the Fed to be more cautious about rate cuts in 2025, with some analysts predicting fewer reductions than previously anticipated. In the meantime, long-term interest rates in November stabilized and shifted from a high yield of 4.44% attributable to 10-year Treasuries to 4.18% at month-end. At the same time, the Bloomberg US Aggregate Bond Index gained 1.06% and 2.93% since the start of the year. Long-term credit instruments, as measured by the Bloomberg US Long Credit Total Return Index, gained 2.21% and 2.28% year-to-date.
Focused long-term sustainable funds recorded an average gain of 3.0% in November
Long-term focused sustainable funds (excluding money market funds), a total of 1,392 funds with total net assets of $366.3 billion, recorded an average gain of almost 3.0% and, for the trailing 12-months, grew by an average of 18%. Returns by fund investment categories were bracketed at the lowest end of the range by China Region funds, consisting of just one fund, the KraneShares MSCI China Clean Tech ETF (KGRN) that dropped 5.1% in November and 1.72% over the trailing twelve months. At the upper end of the range with an average of 24.2% recorded by Trading-Leveraged Equity funds, also consisting of a single thematic fund, is the $4.9 million leveraged Direxion Daily Electric and Autonomous Vehicles Bull 2X Shares (EVAV). The same fund posted a negative return of 41.7% over the trailing twelve months. Overall, a limited number of seven investment fund categories out of 72 categories recorded negative average returns in November.
Some of October’s lagging sustainable funds morphed into November’s winners. Initial investor concerns regarding potential changes in renewable energy subsidies and policies following the U.S election results were allayed, it seems, by subsequent clarifications and commitments to maintain support for clean energy initiatives as well as stabilizing and declining interest rates in November.
Two of November’s winners, both concentrated volatile thematic index funds investing in products that facilitate hydrogen-based energy production, included the $40.6 million Global X Hydrogen ETF (HYDR) and the $21.1 million Defiance Next Gen H2 ETF (HDRO). The funds were up 18.7% and 13.4%, respectively, in November after giving up 15.9% and 13.9% in October. Both funds profited from outsized exposures to Bloom Energy Corp. Class A, which makes a type of fuel cell server that can generate electricity from either natural gas, biogas, or hydrogen without combustion, that gained 176% in November, much of it following an announced large scale supply agreement with utility company American Electric Power (AEP). The funds shrunk but did not yet recover from significant trailing twelve-month declines.
Four sustainable mid-cap and small-cap funds also landed in top 10 spots, benefiting, in part, from the lift provided by November’s broad-based stock market rally.
A selection of five US and international equity ESG Leaders indices and one fixed income benchmark improved their relative performance results versus last month
A selection of five US and international equity ESG Leaders indices and one fixed income benchmark, for a total of six benchmarks constructed by MSCI around ESG screening and exclusionary criteria, improved their relative monthly performance results in November versus October. All three international equity-oriented ESG Leaders indices outperformed their conventional counterparts in November, recording excess returns ranging from 13 bps recorded by the MSCI EAFE ESG Leaders Index to 34 bps achieved by the MSCI ACWI ex USA ESG Leaders Index as well as the MSCI Emerging Markets ESG Leaders Index. At the same time, the two US-oriented benchmarks, the MSCI USA ESG Leaders Index and the MSCI USA Small Cap ESG Leaders Index underperformed by 67 bps and 79 bps, respectively, while the fixed income-oriented index, the Bloomberg MSCI US Aggregate ESG Focus Index, lagged by a very narrow 1 basis point.
Beyond the one-month results and continuing to 12-months, relative performance results lagged over the 3-, Y-T-D and 12-month intervals registered by the ESG-oriented benchmarks, with the exception of the MSCI Emerging Markets Leaders Index that outperformed during each of the three intervals.
Over the intermediate and long-term time frames, relative performance results through November remain lackluster. Equity and fixed income ESG indices lagged their conventional benchmarks over the three-year period. Over the previous five years, only two indices outperformed. At the same time, three of the five (the track record of fixed income securities doesn’t extend to 10-years) ESG indices outperformed their conventional benchmarks. These include the three international yardsticks. That said, the ten 10-year track record attributed to ESG indices is questionable in the light of significant operational and definitional changes over that time interval. 3-year and 5-year proxies may be better indicators.
Notes of Explanation: Performance represents the average return for the category over the noted time interval. Categories are listed in order of 1-month average total return performance recorded in November 2024. Funds include mutual funds and ETFs. Sources: Morningstar Direct and Sustainable Research and Analysis LLC
