November has been great for the stock market so far, to put it mildly. As of Nov. 18, the S&P 500 index is more than 10% higher for the month, and most other major indices are higher by similar amounts.
The key driving force behind the upside move is the announcement that two COVID-19 vaccines are about to apply for emergency use authorization, and that they're more effective and safe than most experts expected.
There are a few sectors of the stock market that have been especially big beneficiaries of the positive COVID-19 vaccine news, including retail, real estate, and financials. Here's why these groups are beating the market, how well index funds that track them have performed, and why there could still be room to the upside.
Retail is one of the obvious vaccine beneficiaries
It shouldn't come as a surprise that retail is one of the biggest beneficiaries of a safe and effective vaccine. Retailers depend on people being willing and able to venture out and buy things. With the pandemic causing people to stay home, boosting reliance on e-commerce, and elevating unemployment, consumer spending in brick-and-mortar retailers has been weak in 2020.
However, thanks to the recent vaccine news, the SPDR S&P Retail ETF (NYSEMKT:XRT) is up by nearly 15% so far in November. And some of the fund's top holdings -- especially those in discretionary retail businesses -- have done even better. Gap, Nordstrom, and Abercrombie & Fitch are up by 23%, 76%, and 40% in November, respectively.
Why has real estate outperformed?
Real estate has been another top performer, with the Vanguard Real Estate ETF (NYSEMKT:VNQ) up by 12% this month. Yet it's been a very mixed bag. Some real estate investment trusts have done incredibly well, while others have lagged.
REITs that own consumer-facing properties and other hard-hit property types have been among the biggest winners. In November alone, mall REIT Simon Property Group is up by 24%, and hotel REIT Ryman Hospitality Properties is up by 47%. On the other hand, REITs that did well in the stay-at-home economy have underperformed, such as data center REIT Digital Realty Trust, which is down by a little more than 1% in November.
Vaccine availability could be huge for banks
Last but not least, the Financial Select Sector SPDR (NYSEMKT:XLF) is the best-performing of the three index funds discussed here, up 16% this month.
Elevated unemployment rates can be bad for banks. With millions of Americans out of work, people could start to have trouble paying back their loans, resulting in billions in losses for banks. On the other hand, if life starts to return to normal and unemployment starts to get back to pre-pandemic levels, it could remove the lingering uncertainty from the banking industry.
Is it too late to buy?
It's worth noting that even though these have been three of the top-performing sectors in November, they are still three of the worst performers since the pandemic began. News that an effective and safe vaccine is on the way has certainly caused investors to breathe a sigh of relief, but retailers, REITs, and banks are still a long way from getting back to business as usual.
I've said before that the process of returning to pre-pandemic levels will take place in three steps, if all goes well:
- Evidence that a safe and effective vaccine is on the way.
- Widespread availability of a vaccine.
- Business returning to normal levels.
Investors should keep in mind that we're only on step one. It's still going to take a few months at a minimum before these vaccines are widely distributed, and it will take some time after that before business returns to pre-pandemic levels at many retailers, REITs, and banks. If you believe life will return to normal sooner rather than later, there could still be plenty of upside potential in these three sectors.