Junk Rally Takes a Breather

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.

Health care led the sectors this month with a 6.5% gain with the scope of the final health-care legislation coming into focus as the House passed its version of the bill and the Senate began debate on their version. Financials brought up the rear losing 1.78% in the quarter, but some firms in the sector, like  American Express (AXP), had great quarters with returns over 20%.

 

Moat 4-Week (%) YTD (%) Wide 4.60 17.86 Narrow 1.05 31.02 None -0.13 42.65

 

Sector 4-Week (%) YTD (%) 1-Year (%) 3-Year (%) 5-Year (%) Healthcare 6.51 19.09 31.45 0.21 4.28 Telecommunication 6.45 7.68 18.42 -5.83 1.43 Consumer Goods 4.62 23.62 27.23 2.49 5.87 Business Services 3.93 29.53 43.04 -2.27 5.41 Software 3.4 46.24 48.02 0.3 4.04 Industrial Materials 3.21 31.83 46.49 -5.28 0.9 Media 2.33 34.94 57.29 -10.71 -4.88 Hardware 1.43 56.93 64.36 -0.11 3.01 Consumer Services 0.93 29.41 45.45 -3.69 0.49 Utilities 0.92 5.64 7.43 -3.11 5.16 Energy -1.15 20.85 21.72 1.8 10.77 Financial Services -1.78 17.01 30.99 -21.13 -8.38