Month: November 2020

Domestic stocks enjoyed a significant rally last week. Uncertainty over the timing of final presidential election results and coronavirus case count surges across the country did not hamper recent gains. The Dow, S&P 500 and Nasdaq all rounded out their best-performing week since April. Even more notable, the S&P 500 posted its best trading week during a presidential election since 1932.

Rather than spurring a sell-off frenzy in the market, the delay in the final ballot count for several key swing states has had a net positive effect on the markets. The major indexes appear to be taking comfort in the ultimate political gridlock that will ensue regardless of the outcome of the election. Instead of having to contend with the possibility of massive reforms in big tech and healthcare as well as a potential Green New Deal, the markets settled into their rally upon the near certain outcome that both Congress and the White House will not be under Democratic control. This conforms to the historical trend since 1945 of political gridlock in Congress and the White House producing significantly higher annualized returns (approximately 4 percentage points higher) than in years when the same party controlled the two branches.

Although two of the three major indexes were slightly down on Friday, their losses did not significantly detract from their rally over the four previous days. Friday’s market activity was more indicative of a pause in the rally than a loss of overall momentum.

On Friday, the Dow lost 66.78 points or 0.24 percent. The Dow gained 6.9 percent for the week even accounting for Friday’s slight decline. Friday’s drop in the Dow was significantly affected by the dips in shares of UnitedHealth (UNH) and Chevron (CVX) of 1.96 and 1.37 percent, respectively.

The S&P 500 was up 7.3 percent for the week but had a small loss of 0.03 percent on Friday. CVS (CVS) was one of the best performers in the S&P 500 for Friday, with a gain of 5.76 percent.

The Nasdaq posted modest gains on Friday of 4.3 points or 0.4 percent. Of the major indexes, the Nasdaq had the most significant rally of the week with a gain of 9.1 percent. Mogo Inc. (MOGO) was a top performer on Friday for the Nasdaq, with a gain of 36.57 percent. Assembly Biosciences (ASMB) was one of the index’s worst for the day after losing 65.37 percent.

The Russell 2000 lost 15.89 points or 0.98 percent on Friday. The small-cap index is still on track of an overall positive year, with a gain of 2 percent so far this year.

Sectors were strong across the board. Technology benefited from reduced risk of BigTech regulation. SPDR Technology (XLK) gained 9.62 percent. SPDR Materials (XLB) climbed 7.58 percent. Precious metal miners were big winners thanks to a weaker U.S. dollar. VanEck Gold Miners (GDX) and Global X Silver Miners (SIL) both gained more than 10 percent. Agricultural commodities were also strong, led by soybeans which closed at a new 52-week high.

iShares Nasdaq Biotechnology (IBB) gained 5.51 percent after the FDA appeared positive on an Alzheimer’s drug made by Biogen (BIIB). Shares of the biotech giant climbed 30.48 percent on the week. If the drug receives approval, it will be the first new treatment in Alzheimer’s in 20 years.

Foreign funds performed well. iShares MSCI EAFE (EFA) rallied 7.83 percent while iShares MSCI Emerging Markets (EEM) added 7.25 percent.

This week’s jobs report renewed confidence in the economy. The Labor Department published better than expected job creation data for October in Friday’s report. Instead of the projected 580,000 jobs added, an additional 638,000 jobs were reported last month. Importantly, the vast majority of new jobs were added in the private sector, which helped to balance out a loss of 268,000 public sector jobs. Further bolstering the outlook on the pace of the U.S. economy, the Labor Department also revised September’s job creation report upward to 672,000 new jobs created.

In addition, the Labor Department released a markedly improved unemployment rate of 6.9 percent, which was down a point from September’s rate. A deficit of 10 million jobs lost since the initial coronavirus shutdowns remains, but the impressive pace of private sector job creation should continue to help fill that gap. Another metric in tracking the economy’s progress on recovery is the anticipated increase in permanent layoffs for private sector jobs as opposed to temporary layoffs.

Although the Labor Department’s jobs report was mainly positive this week, the recent job growth is not enough to move the Fed off course from its stimulus posture. Even as new private sector jobs continue to be added, the lagging unemployment since March remains a point of concern for the Fed in terms of keeping interest rates low and not prematurely scaling back any stimulus benefits.

Both the manufacturing and service PMIs jumped in October. The manufacturing PMI jumped to a new two-year high in October as new orders climbed to a 17-year high.

Treasury yields experienced a positive week, with the 10-year yield gaining 0.82 percent on Friday due to expectations that the inflation rate will increase. This rally helped to offset the declines in Treasury yields from earlier in the week. On Wednesday, the 10-year yield and 30-year yield had their worst decline since March, with losses of 13 and 15 basis points, respectively. iShares iBoxx Investment Grade Corporate Bond (LQD) gained 2.06 percent, iShares iBoxx High Yield Corporate Bond (HYG) 2.05 percent and iShares 20+ Year Treasury (TLT) 1.27 percent for the week.

Earnings season remained highly positive for stocks. Winners this week included Nvidia (NVDA) and Cloudflare (NET), gaining 16 percent and 24 percent, respectively.

The trading week began with stocks on the rise. The Russell 2000 Index led with an advance of 1.96 percent, followed by the Dow Industrials gain of 1.60 percent, the S&P 500’s return of 1.23 percent and the Nasdaq’s increase of 0.42 percent.

Some major tech giants posted slight losses to start the week. Twitter (TWTR) shares dropped 2.95 percent Monday, though its shares quickly rose 2 percent in afterhours trading. Its SEC filing, which confirmed that its Chief Executive Jack Dorsey will remain at the helm after an external audit of the company leadership, and its upcoming $2 billion stock buyback plan.

PayPal (PYPL) shares closed up 0.88 percent Monday thanks to an increase in new user account activations due to the recent boom in ecommerce transactions. Investor expectations were tampered by its announcement of fourth-quarter adjusted earnings outlook, which was about 10 cents per share lower than analysts’ expectations. Apple (APPL) shares were down 0.08 percent Monday, but expectations remain that its stock will bounce back as its next product launch date of November 10 approaches.

Treasury yields dipped slightly to start the week. The 10-year Treasury note yield dropped one basis point Monday, while the 30-year bond yield lost 1.5 basis points for the day. However, the two-year note creeped up slightly with a gain of 0.2 basis points.

The Federal Reserve heads into a two-day policy meeting this Wednesday, during which the pace of its continued purchasing of assets for the duration of the pandemic economic recovery will be the central focus. For now, the Fed has maintained its purchasing rate of $120 billion monthly in Treasury notes and mortgage-backed assets, which vastly outpaces its purchasing policy during the 2008 recession.

The Institute for Supply Management released positive news Monday on the status of the nation’s factories, with the index for purchasing managers showing greater strength for the month of October than economists predicted. The index, which measures industry growth as any value over 50, climbed to 59.3 points this past month, its peak since September 2018, which significantly exceeded its September benchmark of 55.4 points.

Oil futures reached their first gain after three previous negative sessions on Monday. They responded to assumptions that OPEC+ will delay any plans to level off cuts in production as a result of concerns over energy demand. Chevron (CVX) shares closed up 3.81 percent for the day following positive third-quarter earnings reports, which demonstrates the resiliency of domestic oil companies with solida long-term growth strategies, even in the midst of declines in oil prices worldwide.

On Friday, the Bureau of Labor Statistics will release the October employment report. Economists forecast 530,000 new jobs and an unemployment rate of 7.6 percent.

The ISM Manufacturing index surged to 59.3 in October, well above expectations. It also was the highest reading in 2 years. It signals the economy in strengthening with new orders hitting a 17-year high.

Earnings will be overshadowed by election news this week, but many blue chips are still reporting. Wayfair (W), Humana (HUM), Exelon (EXC), Emerson Electric (EMR), and Johnson Controls (JCI) headline Tuesday’s reports.

Wednesday brings Qualcomm (QCOM), Mercadolibre (MELI), MetLife (MET), Wynn Resorts (WYNN) and Expedia (EXPE).

Alibaba (BABA), Square (SQ), Peleton (PTON), Roku (ROKU), Booking Holdings (BKNG), Bristol-Myers Squibb (BMY), Regeneron (REGN), Uber (UBER) and Trade Desk (TTD) report on Thursday. A California ballot initiative could directly impact Uber’s business in the state as well.

The week closes out with reports from CVS Health (CVS), Hershey (HSY) and Marriot International (MAR).

While there is certainly some market volatility to be expected in the week ahead, especially in light of this week’s election, Monday’s strong stock rebound from last week’s dip is a strong sign that the economic recovery remains on an upward trajectory.

All three major stock indexes posted declines for the month of October. The most significant declines can be attributed to losses by the major tech companies after their indications of uncertainty in their future projections. However, this is offset by about 86 percent of S&P 500 companies publishing positive third-quarter profit reports.

The S&P 500 closed down 1.21 percent on Friday and 5.6 percent for the week after its fourth day of losses over the last five. This represented the worst trading week for the S&P 500 since it hit its pandemic-low of 14.68 percent of losses for the week of March 20. With a loss of 2.77 percent over the month of October, the S&P 500 posted its second consecutive month of losses.

It was also the worst trading week for the Nasdaq since March 20 when it posted a decline of 12.64 percent. It lost 2.29 percent for October, which was its second week of losses in a row. Overall, the Nasdaq has traded up 21.61 percent for the year.

The Dow had its fifth negative trading day out of the last six with losses of 0.59 percent on Friday. Since it closed down 17.3 percent on March 20, the Dow closed out its worst trading week with a loss of 6.47 percent. For the month of October, the Dow lost 4.61 percent, which was its worst monthly low since March’s decline of 13.74 percent. For 2020, the Dow is down 7.14 percent.

The Russell 2000 Index closed down 1.48 percent for the day with a loss of 23.1 points. Over the week, the Russell 2000 lost 6.2 percent. Likewise, the small cap index is down 7.8 percent for the year.

Of the 11 sectors, nine closed down for the day, with consumer discretionary spending posting the largest decline of 3 percent. The information technology sector lost 5 percent for the month, due mostly to the drop in large cap tech stocks, which was the sharpest monthly decline across all the sectors.

Investors also sold technology stocks after earnings because while those earnings were strong, companies are starting to forecast future growth more in line with the pre-pandemic economy. For example, Amazon (AMZN) crushed forecasts of $7.41 per share in earnings, coming in at $12.37 per share. However, shares fell 5.45 percent following the news as investors start turning their attention to 2021 and a full reopening of the economy. Twitter (TWTR) dropped 21.11 percent, or 11.07 points.

Apple (AAPL) beat earnings, but couldn’t offer guidance for the current quarter. Its shares slid 5.60 percent. Likewise, Facebook (FB) shares dropped 6.31 percent, or 17.72 points on Friday. Alphabet (GOOGL) bucked the trend though. Its shares gained 3.80 percent as earnings and sales blew past estimates and announced another stock buyback.

Cruise line stocks saw a significant bump on Friday thanks to the CDC’s update that the no-sail mandate, which is set to expire October 31, will be substituted for a conditional-sail order, which would allow cruises to operate with certain safety protocols. Norwegian Cruise Line Holdings (NASDAQ: NCLH) shares rose 5.5 percent; Royal Caribbean (NYSE: RCL) shares closed up 4.8 percent; and Carnival (NYSE: CCL) shares gained 5.6 percent.

Data published by the Labor Department on Thursday showed an improvement in first-time unemployment claims from the previous week. Last week, 791,000 new claimants filed for unemployment. This week, first-time unemployment claims came in at 751,000. Notably, the most recent data reflects the lowest level of first-time unemployment claims since the beginning of the pandemic lockdowns. The total number of Americans filing continuing unemployment claims decreased by 709,000 from the previous week to 7.8 million based on the latest set of data from the Labor Department of October 17.

Further demonstrating the underlying health of the U.S. economy, the Commerce Department reported GDP growth at an annualized pace of 33.1 percent. This was a marked improvement from the Dow Jones economist survey estimate of 32 percent. Even without the passage of the second round of coronavirus stimulus funding, the increases in consumption, business investment and U.S. exports collectively helped to fuel significant GDP growth in the third quarter. This is particularly impressive in light of the 31.4 percent second-quarter decline.

Housing data was solid last week. New home sales hit an annualized pace of 959,000 in September, down slightly from August. Residential investment spiked 59.3 percent during the third quarter, more than making up for the 35.6 percent decline in the second quarter. Residential investment has increased 6.6 percent from the year ago level.

The Bureau of Economic Analysis also released its monthly economic report this week. Personal income grew 0.9 percent in September, better than the 0.5 percent forecast. Consumer spending rose 1.4 percent, beating the 1.1 percent estimate. Core inflation was in line with analyst expectations at 0.2 percent. The savings rate also remained elevated at 14.3 percent, about double what it was before the pandemic hit. This is positive for future growth because as the economy reopens, the savings rate is falling. Consumers will also spend down savings in future months, creating a double-boost to consumer spending going forward.

The Fed’s Friday announcement regarding increased accessibility for small businesses to its Main Street Lending Program signaled a massive opportunity for small businesses. The minimum loan amounts were decreased from $250,000 to $100,000, and the Fed is reducing the borrowing fees. Small and mid-sized businesses are expected to take advantage of the favorable loan terms and extended payback period to maintain their operations.

Interest rates finished the week with a strong rally. The 10-year yield closed at 0.86 percent, the highest close since June. iShares 20+ Year Treasury (TLT) dipped 0.27 percent on the week.

Investors’ concerns over the recent spike in U.S. coronavirus case counts was likely a strong driver of Friday’s stock sell-off. Uncertainty over the upcoming election and the timing of final results also strongly influenced this recent round of sell-offs. As the future of the election becomes clearer and progress is made on containment of coronavirus cases in the U.S., stock sell-offs are unlikely to continue. Recognizing the fundamental health and long-term value to be gained from the markets, some investors are capitalizing on this rash of sell-offs to buy at a significant dip.