By Mark Barnes, PhD, head of investment research (Americas), and Christine Haggerty, research & analytics
The discovery of a new Covid-19 variant in late-November ratcheted up already high anxieties about renewed lockdowns across Europe, worsening inflation and central-bank tightening, triggering a panic sell off that left few of the world’s equity markets and stock sectors unscathed.
Along with only a handful of other stock markets, the US held up reasonably well amid the global rout, outperforming the FTSE All-World Index for November and barely denting its significant lead for the year so far. The FTSE Japan, FTSE Asia Pacific and FTSE Emerging indexes suffered the steepest losses.
The relative resilience of US stocks, particularly among large-caps, further expanded the Russell 1000’s already outsized 11-point performance edge over non-US peers for the past 12 months, which roughly covers the entire span since the news of the Covid-19 vaccine breakthrough was first announced a year ago.
Over this same period, relative returns elsewhere have sunk deeper into negative territory. This underperformance has been particularly severe for Asia Pacific and emerging markets, which each trail their global peers by 13-percentage points for the 12 months.
The Russell 1000’s outperformance versus its global peers in November is largely an upshot of its huge exposure to technology stocks, which rose 2.4% globally as nervous investors sought shelter in companies offering reliable growth fundamentals.
The rally in long-dated US Treasuries also helped growth stocks, as falling yields enhanced their future discounted cash flows. (Technology makes up 32% of the Russell 1000, versus 14% for the non-US index.)
The Russell 1000 also benefited from it being overweight in consumer discretionary stocks, particularly those of retailers and auto & auto parts, a carryover from October.
As the chart below illustrates, the outperformance of large-cap technology and discretionary sectors has been a steadfast driver of Russell 1000 leadership this year, with Big Auto and retail stocks lending a helping hand to tech hardware and software stocks over the past several months.
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The Russell 1000 Index is a stock market index that tracks the highest-ranking 1,000 stocks in the Russell 3000 Index, which represent about 90% of the total market capitalization of that index.
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