Month: November 2020

This week’s stock market performance indicated that investors continue to buy value stocks. The recent trend helped to propel the Russell 2000 Index to a gain of 2.37 percent, while the Nasdaq only edged up 0.22 percent for the week.

The S&P 500 fell 0.67 percent on Friday, which closed as the index’s third down trading day out of the past four. It was down overall by 0.77 percent for the week, which broke its latest two-week positive streak. The overall losses in the index were offset by Twitter’s (TWTR) positive trading performance on Friday, with gains of 2.43 percent.

The Dow dropped 0.75 percent on Friday, which accounted for its third negative trading day over the past four. This index was heavily affected by Salesforce (CRM), which dropped 2.49 percent on Friday.

The Nasdaq dipped 0.42 percent on Friday. The index’s positive performance over the week accounted for its second up week over the past three. Zoom (ZM) gained 6.11 percent on Friday in response to reports of coronavirus case surges, with a gain of 6.11 percent.

The Russell 2000 closed out the week up 0.07 percent on Friday. This was the index’s fifth positive trading day out of the last six and its third positive week out of the last four.

Of the 11 sectors, 10 closed out the week in the negative. Technology had the worst performance for the week with a decline of 1.05 percent. This likely reflects the dips in share prices as a result of optimism over Pfizer’s announcement of its emergency authorization request for its coronavirus vaccine and its potential to accelerate the return to pre-pandemic economic activities.

Energy continues to rebound. SPDR Energy’s (XLE) gained 5.63 percent for the week. Crude oil finished the week higher, closing above $42 per barrel for the first time in nearly three months. This crude oil rally is particularly significant because it overcame rising inventories that have not yet been offset by concurrent recalibrating of consumer demand. The next best performing sectors were materials and industrials. SPDR Materials (XLB) gained 1.09 percent, and SPDR Industrial (XLI) added 1.06 percent.

Although initial unemployment increased by 31,000 last week to 742,000, this slight increase in first-time claims likely reflects a temporary response to new coronavirus lockdown measures in certain states. This was the first time that initial unemployment claims inched up over the past five weeks. Given the overall trend in decreasing continuing unemployment claims reflected week over week, analysts remain optimistic that the private sector will continue to add back jobs at a strong rate.

The U.S. dollar weakened 0.36 percent on the week. iShares MSCI Emerging Markets (EEM) and iShares MSCI EAFE (EFA) advanced 1.52 percent and 1.41 percent, respectively, for the week. Rather than responding to a weaker dollar, the gains in these funds are more directly attributed to their larger weightings in value sectors.

The 10-year Treasury bond yield fell for most of the week, closing on Friday at 0.83 percent. Likewise, the yield on a 30-year mortgage fell to a new low of 2.72 percent. The dip in yields lifted government and corporate bonds with lower credit risk. iShares 20+ Year Treasury (TLT) returned 2.12 percent and iShares iBoxx Investment Grade Corporate Bond (LQD) increased by 1.33 percent. iShares iBoxx High Yield Corporate Bond (HYG), which is less sensitive to changes in interest rates, also gained 0.53 percent.

Corporate earnings season reports continued to be released throughout the week, with many companies posting earnings above expectations. Retailers Wal-Mart (WMT), Target (TGT) and Home Depot (HD) delivered better-than-expected earnings as pandemic-induced shopping behaviors kept consumers stocking up on supplies. Wal-Mart reported earnings at $2.5 billion higher than forecasts for the third quarter. Its shares hit an all-time trading high on Monday while online sales in the U.S. increased by 79 percent. Target’s revenue reports topped the consensus estimate by 10 percent and climbed 21 percent over the prior year. In addition, Home Depot’s earnings topped the consensus forecast, with its net sales reflecting a 23 percent increase over the third quarter of last year.

Concerns over increases in coronavirus case counts has not dimmed the recent spike in confidence in the homebuilding industry. Homebuilder confidence blew past last month’s all-time high to hit 90 in November. Housing starts increased more than expected to an annualized pace of 1.53 million in October. Existing home sales hit an annualized pace of 6.85 million, the highest since 2006.  iShares U.S. Home Construction (ITB) gained 1.17 percent for the week.

Monday’s stock rally was fueled by positive news from Moderna (MRNA), a pharmaceutical company working on the development of a coronavirus vaccine, about promising late-stage clinical trial results. Moderna reported a higher-than-expected efficacy rate of 94.5 percent in Phase 3 clinical trials. In addition, Moderna reported that its vaccine candidate also maintained its stability at refrigerated temperatures for longer than predicted, which bodes well for efficient widespread distribution to the public. This major announcement comes just a week after Pfizer (PFE) stated that its vaccine, which BioNTech (BNTX) is also assisting with developing, showed an efficacy rate above 90 percent in Phase 3 clinical trials. That news sparked a similar surge for stocks, especially value stocks and those hit hardest by the pandemic shutdowns. Moderna shares traded up 9.58 percent at $97.95.

The Dow hit a new intraday high following the vaccine announcement. With 456 points added before noon, the Dow climbed 1.6 percent, which topped its previous record set last week following similar upbeat news on vaccine developments. The DOW closed up 1.60 percent for the day, while the S&P 500 advanced 1.16 percent.

The Nasdaq was largely sidelined from the day’s rally. It still ended the day positive, but by a relatively smaller margin of 0.80 percent. Amazon (AMZN) shares closed higher but underperformed the market with a comparatively small gain of 0.072 percent. Netflix (NFLX) shares, one of the early winners at the beginning of the pandemic, closed down 0.77 percent for the day. Likewise, Zoom (ZM) shares dipped 1.10 percent Monday.

The Russell 2000 was up 2.37 percent for the day with a gain of 41.29 points.

The 10-year Treasury yield also responded positively to Monday’s vaccine news. It was up 1 basis point to 0.901 percent. This mirrors the jump in the 10-year rate from last week. iShares iBoxx High Yield Corporate Bond (HYG) rallied 0.53 percent on the day, iShares iBoxx Investment Grade Corporate Bond (LQD) and Invesco Senior Loan (BKLN) both rose 0.32 percent. iShares 20+ Year Treasury (TLT) fell 0.23 percent.

The energy sector posted the largest relative gains for the day among the 11 sectors. Oil prices rose 0.31 percent to 41.47 per barrel on renewed optimism over increased consumer demand for travel. SPDR Energy (XLE) climbed 6.58 percent.

Major airline sectors traded up for the day. United Airlines (UAL) shares closed 5.2 percent higher, American Airlines (AAL) 4.49 percent, and Delta Airlines 4.2 percent. Similarly, cruise line stocks, responded positively to Monday’s vaccine news. Royal Caribbean Cruises (RCL) shares closed up 6.96 percent, Norwegian Cruise Line (NCLH) 6.23 percent, and Carnival (CCL) 9.74 percent.

Tesla (TSLA) shares lost 0.10 percent for the day but are set for a significant rebound. S&P Global announced late Monday afternoon that the company will be joining the S&P 500 before trading opens on December 21. Tesla will join the Index as one of its top 10 most valuable companies based on its Monday share prices. In after hours trading, Tesla shares spiked 9 percent. It remains to be seen which company that Tesla ousted from the S&P 500.

This Thursday, the European Council will meet to discuss the finalization of UK’s Brexit deal from the European Union amid the pandemic. The U.S. banking industry will be watching these developments closely to gauge their potential impact on UK and European trade and business relations as well as whether demand for domestic loans will suffer. While the deepest impact is likely to be contained to European financial institutions, some big U.S. banks are monitoring the situation cautiously.

The National Association of Homebuilders’ confidence index hit an all-time high of 85 last month. The November reading is out on Tuesday. Housing starts and building permits for October follow on Wednesday. On Thursday, the October home sales report for the U.S. housing market will be released. As consumer confidence in homebuilding and demand for single-family housing units in more suburban and rural areas have increased during the pandemic, Thursday’s numbers should confirm an increase in the number of home sales and signal sustained demand.

Palo Alto Networks (PANW) kicked off earnings this week with top and bottom-line beats. Shares climbed 7.65 percent on the news. Tyson Foods (TSN) benefited from China driving up global meat prices. It also beat sales and profit estimates. Shares advanced 3.83 percent.

Earnings reports from six major retail companies are due to be released later this week. On Tuesday, Walmart (WMT) and Home Depot (HD), which have been extraordinarily strong performers throughout the pandemic, will publish earnings reports. Target (TGT) and Lowe’s (LOW), relatively smaller retailers with similarly strong performances, will release earnings reports on Wednesday. On Thursday, earnings reports from BJ’s Wholesale (BJ) and Macy’s (M) are due and are likely to reflect disparate results. While Macy’s has struggled majorly both before and during the pandemic, BJ’s Wholesale has experienced surges of 80 percent considering their designation as an essential business and heightened consumer demand for food and other essentials during the pandemic. Overall, expectations are high for mostly positive earnings reports with the consensus that consumer spending and sentiment continues to improve in line with the overall U.S. economic recovery.

With rising coronavirus case counts across the country, the markets reacted well to potential progress for public health initiatives that could hasten the economic recovery and return to pre-pandemic consumer activity, including travel. The stage has been set for value stocks to continue to do well, even amidst the increasing coronavirus case counts. Positive earnings reports due later this week could also help sustain gains across the market, along with promising data expected on October home sales.

U.S. stocks began with an impressive start with Pfizer’s (PFE) announcement of significant progress on its COVID-19 vaccine development along with BioNTech (BNTX). Its initial assessment of a 90 percent effectiveness rate for the vaccine has yet to be verified by the FDA, but it spurred high hopes of a safe return to pre-pandemic travel and in-person activities once it becomes widely available,. Election developments, rising coronavirus case counts, and uncertainty surrounding the potential for a coronavirus stimulus package also dominated the news and tempered positive consumer sentiment slightly.

The S&P 500 closed Friday up 48.14 points at 3,585.15, or 1.36 percent for the day, which was a new record closing since September. It rounded out a second consecutive positive trading week with a 2.16 percent gain on the week.

The Dow ended the day up 1.37 percent. It momentarily traded at 29,551.42, above its all-time closing record attained in February. This was the second positive trading week in a row for the Dow with a 4.08 percent gain on the week.

Friday’s gains in the Nasdaq lagged a bit behind the other major indexes. The Nasdaq added 1.02 percent on Friday. It was down slightly for the week with a loss of 0.6 percent. Although all 11 sectors had gains Friday, technology was the lone down sector for the week. SPDR Technology (XLK) declined 0.31 percent. Stocks that surged in the era of lockdown policies reacted poorly to the positive vaccine news. Zoom Communications (ZM) tumbled 19.30 percent, Peleton (PTON) 19.63 percent, and Shopify (SHOP) 11.99 percent.

The Russell 2000 gained 2.08 percent on Friday, bringing it up to 1,744. This was a new high for the index over the past two years. It rounded out its third positive trading week over the past four as investors flocked to cyclical stocks on the heels of Pfizer’s vaccine announcement.

Energy was the top-performing sector on Friday with a gain of 3.81 percent. U.S. crude oil futures dropped 2.4 percent for the day to $40.13 per barrel, but they were still up overall for the week by 8.1 percent.

The positive vaccine news boosted the outlook for the travel industry, with airline companies and cruise lines posting significant gains. US Global Jets (JETS) gained 13.52 percent on the week. Invesco Dynamic Leisure and Entertainment (PEJ) rose 8.66 percent.

The Consumer Sentiment Index, published by the University of Michigan, came out this week with a gauge of 77 percent. This was slightly behind the previous level of 88.1 percent and likely reflects some trepidation among consumers about the potential for additional lockdown measures.

The National Federation of Independent Business’ Small Business Optimism Index remained steady at its 104.0 level in October.

The producer-price index report this week rose 0.3 percent. This was the sixth straight month of gains in producer prices. Over the past 12 months, producer prices rose from 0.4 percent to 0.5 percent.

A rise in interest rates helped propel the financial sector last week. SPDR Financials (XLF) increased 8.34 percent. SPDR S&P Regional Banking (KRE) popped 14.05 percent. SPDR Energy (XLE) rallied 17.15 percent.

Bond yields popped this week in conjunction with stocks. The 10-year Treasury yield climbed as high at 0.98 percent before settling at 0.89 percent. Rates are at their highest level since June. Bonds were broadly lower with rates rising, but falling credit risk offset that decline for high yield bonds. iShares iBoxx High Yield Corporate Bond (HYG) gained 0.21 percent on the week.

Unemployment numbers reported last week showed improvements, with continuing claims dropping from 7.22 million to 6.79 million over the previous week. The Labor Department reported that first-time unemployment claims totaled 709,000 for the week, which was the lowest point since the beginning of the pandemic. St. Louis Fed President James Bullard highlighted the rapid pace of the U.S. economic recovery in terms of unemployment in a speech last week, commenting that this current job recovery is significantly faster than the aftermath of the 2008 financial crisis and is projected to stay the course.