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Stock Strategist

Junk Rally Takes a Breather

High-quality stocks are now outperforming low-quality names.

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The market continued its stunning winning streak in November, with the S&P 500 gaining about 3% over the last four weeks, and the Dow gaining almost 5%. Back in August we wrote about high-quality moaty businesses lagging lower-quality stocks in the recovery. Investors were seeking risk, and the no-moat companies that had been beaten down the most during the downturn looked the most attractive.

That trend seems to be beginning to reverse itself. The Morningstar Wide Moat Index rose 4.6% over the last month, compared with a 1.05% gain for narrow-moat firms and a 0.13% loss for no-moat names. Concern that the market is fully, or even over, valued and worries about a potential double-dip recession may be sending investors back to quality.

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Jeremy Glaser does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.