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Global Macro: Riskier Stocks Lead Markets Higher

NEW YORK ( TheStreet) - Riskier stocks -- known as high-beta stocks -- led equities in November, a signal of positive momentum.

The chart below is of PowerShares QQQ (QQQ) over SPDR S&P 500 (SPY). The chart shows the Nasdaq's relative strength versus the S&P 500. Investors usually favor riskier stocks when they are confident about the economy.

Stable monetary policy was the main reason for stocks' strength in November. Investors realize that the Federal Reserve will likely maintain its current level of easing into 2014. The Fed seems to think that the economy isn't yet ready to operate without intervention, and Fed nominee Janet Yellen is a known policy dove who will likely keep stimulus intact next year.
[Read: <a target="blank" data-add-tracking="true" href="http://www.thestreet.com/story/12128836/1/why-the-fed-wont-taper.html"><em>Why the Fed Won't Taper</em></a>]

The current equity uptrend looks to be very strong with solid support levels under most equity indexes across the globe. That provides the confidence that even if we do get a correction lower, buyers will step into the market when prices fall far enough.

This reasoning goes back to stable monetary policy. Central banks have made it clear that they are committed to stimulus. That creates a safety net that deters prices from falling too far.
[Read: <a target="blank" data-add-tracking="true" href="http://www.thestreet.com/story/12131102/1/kelloggs-stuck-in-a-box.html"><em>Kellogg's Stuck in a Box</em></a>]

Equities have been the asset of choice recently due to strong corporate profits and the instability of competing assets. Bond yields have been driven lower as central banks have devalued their currencies to spur economic growth. That has left currency and commodity markets volatile, prompting many investors to put their money into higher-yielding assets.

With no major correction this year, many investors have watched equity markets climb higher, missing out on most of the rally. That may cause a chasing phenomenon as the year comes to an end. Volume looks to be light during the holiday season, and so any new money could push markets higher quickly.
[Read: <a target="blank" data-add-tracking="true" href="https://www.mainstreet.com/article/small-business/most-small-business-owners-lack-necessary-accounting-skills"><em>Most Small Business Owners Lack Necessary Accounting Skills</em></a>]

If high-beta stocks continue to rise into the New Year, that is a positive indication of investor sentiment. Keep an eye on equity market leadership to understand the strength of the underlying market and how committed investors are to buying equities.

At the time of publication, the author had no position in any of the stocks mentioned.
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