Month: December 2020

Markets opened the week on a mixed note. The Nasdaq led with an advance of 0.45 percent while the Dow Jones Industrial Average retreated 0.49 percent on the day. Likewise, the S&P 500 also dipped with a loss of 0.19 percent, while the Russell 2000 Index lost 0.63 percent.

Equities traded in a tight range on Monday with technology shares leading and energy lagging. Crude oil dipped 1 percent on Monday. Saudi Arabia raised prices for Asian buyers on Sunday, but it lowered prices for the United States yet again. Prices remain lower in the U.S. thanks to ample domestic production.

On the other hand, technology stocks had a positive start to the week with major funds and notable tech companies posting relatively solid gains. SPDR Technology (XLK) gained 0.28 percent on the day. Apple (AAPL) helped fuel this boost in the fund with an increase of 1.19 percent. Bloomberg reported that Apple is working on new custom-designed chips for its various Macintosh computer lines. The expectation is that the chip innovation will far exceed the performance of the Intel chips that are currently in use, which propelled the increase in Apple shares on Monday. Shares of Intel (INTC) fell 3.40 percent on the day, however, semiconductors were resilient against this decline. iShares PHLX Semiconductor (SOXX) gained 0.57 percent. SPDR Communication Services (XLC) climbed 0.63 percent. Shares of Netflix (NFLX) rose an impressive 3.51 percent.

This week will reveal an extremely limited range of economic data. Most notably, the Job Openings and Labor Turnover Survey for October will be out on Wednesday and is anticipated to reflect positive job growth. It tracked an additional 6.4 million job openings in September. The report was favored by Treasury Secretary nominee Janet Yellen when she was the chair of the Federal Reserve and holds significant weight in terms of taking a pulse on the actual employment landscape.

Economists project weekly initial unemployment claims fell to 712,000 last week. Initial claims haven’t declined below 700,000 since the start of the pandemic, which signals that the employment data may be skewing stock performance to an unbalanced degree. Continuing claims have steadily declined though as job seekers re-enter the workforce and the private sector steadily adds more jobs. The state insurance programs are down to 5.52 million claims from more than 20 million at the height of lockdowns.

The U.S. Dollar Index rebounded 0.16 percent on Monday after falling to a new 52-week low last week, which helped to buoy some confidence. Commodity results were generally solid, though Global X Copper Miners (COPX) fell 1.68 percent. VanEck Rare Earth (REMX) gained 1.28 percent, Global X Uranium (URA) 5.82 percent, VanEck Gold Miners (GDX) 3.37 percent and VanEck Steel (SLX) 0.36 percent.
The 10-year Treasury yield dipped slightly to 0.93 percent on Monday. Had the 10-year Treasury yield risen above the 1 percent line, that would have been more of a positive influence on inflation-related and value stocks. The 10-year Treasury yield has been rising steadily as of late, and notably nearly doubled, since August. High-quality corporate bonds were the winner on Monday, with Fidelity Corporate Bond (FCOR) returning 0.16 percent.

Looking ahead for this week, consumer inflation data will be published on Thursday, while the newest producer inflation data will be released on Friday. Consumer prices held steady in October, while producer prices climbed at a slight boost of 0.3 percent. Crude oil prices increased in November and should push headline inflation back into positive growth over the month ahead.

Last week was an excellent week for stocks as all major indexes experienced gains. Friday was a particularly strong day. The Nasdaq increased 2.12 percent on the week, the Russell 2000 Index 2.06 percent, the S&P 500 Index 1.67 percent, and the Dow Jones Industrial Average 1.03 percent.  On Friday, the S&P 500 rose 0.88 percent, the Dow 0.83 percent, the Nasdaq 0.70 percent, and the Russell 2000 gained an impressive 2.37 percent.  Relatively strong economic data bolstered the outlook on the sustainability and progress of the economic recovery, although lagging employment data released triggered concerns over the rate of private sector job growth.

The manufacturing PMIs published over the week signaled that important sectors remain in a healthy expansion territory. The Markit survey held steady at 56.7, while the ISM survey dipped to 57.5 percent. The Markit services PMI rose from 57.7 in October to 58.4 in November.  Construction spending climbed 1.3 percent in October with residential home construction helping drive growth. Reports show that motor vehicle sales hit an annualized pace of 15.6 million for the month. This was down slightly from 16.3 million, but not surprising given the spread of lockdown policies in some states last month.

Initial claims for unemployment fell to 712,000 in the week ended November 28, below forecasts of 780,000 and the prior week’s 787,000 claims. Continuing claims fell by nearly 500,000 persons. The pace of job growth came in under expectations for the month of November, according to payroll reports published this past week. The Bureau of Labor Statistics’ nonfarm payroll report showed 245,000 net new jobs in November, below forecasts of 432,000. This was also the slowest month of the last six for new job growth since May. However, the unemployment rate fell to 6.7 percent, while average hourly earnings increased 0.3 percent, both of those numbers beating expectations. Encouragingly, the health of wage growth and fewer job losses than expected over the month indicate a promising trend for the long-term economic recovery.

Weaker employment data along with strong data in other sectors create a “goldilocks” situation for the U.S. stock market given the Federal Reserve has stated that it will preserve the historically low interest rates until unemployment fully rebounds. As such, the longer the unemployment figures take to return to the pre-pandemic level, the more active that the Fed will be in intervening to boost the economy. This should hold true even with a near-term boost in economic activity and in spite of any whispers of concerns over a rise in inflation. Along those lines, this dynamic increases the likelihood of an additional coronavirus stimulus package.

The 10-year Treasury Yield broke through to its highest level of the economic recovery period to 0.98 percent on Friday. Financial shares, which are tied extremely close to interest rate fluctuations and projections, benefited significantly from this bump in the 10-year benchmark.

The U.S. Dollar Index broke down this week, losing 1.17 percent and falling to a new 30-month low. Renewed local lockdown policies across the country predictably boosted technology shares, which spurred the U.S. market to outperform foreign shares. iShares MSCI Emerging Markets (EEM) returned 1.62 percent this week, and the MSCI EAFE posted 1.16 percent in weekly returns.

Along with technology, the healthcare and energy sectors also had strong performances last week. SPDR Energy (XLE) advanced 4.42 percent as U.S. crude oil topped $46 per barrel for the first time in nine months. SPDR Healthcare (XLV) gained 2.83 percent, aided especially by the biotech sector. iShares Nasdaq Biotechnology (IBB) rallied 3.20 percent, and SPDR S&P Biotech (XBI) added 3.61 percent. SPDR Technology (XLK) increased 2.76 percent on the week. The outlier sector that took a bit of a hit on Friday was utilities, with a slip of around 1 percent.

The relatively strong stock market performance on Friday, and for the week overall, combined with strength in homebuilding and the healthcare, technology, and energy sectors helped position the market for a solid start to the coming trading week.

Following the holiday weekend, stocks paused on Monday. The Dow dropped 0.91 percent on yesterday. Despite this slight decline, the index concluded a positive month with a gain of 12 percent. This was the biggest monthly gain for the Dow in nearly 33 years. The Nasdaq fell slightly with a 0.06 percent loss. The S&P 500 also lost 0.46 percent for the day. The Russell 2000 posted the most significant loss, with a decline of 1.91 percent. Shares of crude oil also retreated 0.62 percent Monday, with the price per barrel falling to $45.15.

The most significant driver of Monday’s dip in stock performance was the mid-morning announcement of new housing market data, which came in below the consensus forecast. Instead of hitting the forecast 1 percent increase, pending home sales for October reflected a decline of 1.1 percent month over month. In response to the below-forecast home sale figures for the month, major home-building stocks Lennar (LEN) and D.R. Horton (DHI) declined 2.3 percent and 1.95 percent, respectively.

In addition, the Chicago Purchasing Managers Index revealed below-forecast data on Monday for the month of November. The gauge for new orders and production from manufacturing companies posted at 58.2, a drop from its previous reading of 61.1 and lower than the projected 59.2. As a result, shares of 3M (MMM) dipped 2.4 percent for the day. Likewise, shares of steel manufacturers United States Steel (X) and Nucor (NUE) dropped 2.5 percent and 2.5 percent, respectively.

Although the stocks generally fell on news of lower home-building figures for the month, the positive news from consumer spending during the unofficial start to the holiday shopping season indicates that the economic recovery remains well underway for the long-term. The preliminary data for Black Friday sales numbers came in at $9 billion in consumer sales, which includes online purchases. This record-setting sales number reflects a 22 percent increase for Black Friday consumer spending year over year, which is especially promising. Further underscoring the strength of consumer confidence despite retail stores reporting an estimated 50 percent reduction in foot traffic on Black Friday. Walmart (WMT), one of the major retailers most dependent on the traditional boost in sales from Black Friday and Cyber Monday shopping, saw shares rise 0.78 percent Monday.

Stock performance was not universally negative on Monday, especially considering that growth tech stocks have recently inched up in terms of performance against value stocks. For example, the Technology Select Sector SPDR Fund (XLK) gained 0.7 percent for the day and is up 2.8 percent over the past 10 days. On Monday, Apple (AAPL) shares were up 3.52 percent. Given that the values of some growth tech stocks have fallen recently, investors are taking advantage of adding them to their portfolios.

Federal Reserve Chairman Jerome Powell prepared a statement to be delivered to Congress regarding updates on the CARES Act funding in which he expressed cautious optimism over the potential for a coronavirus vaccine to help accelerate the economic recovery. He reaffirmed that the Fed is committed to aiding in the recovery by maintaining borrowing rates at almost zero percent and purchasing approximately $120 billion in bonds monthly, as the Fed has been doing consistently. Treasury Secretary Steven Mnuchin also provided prepared remarks to the Senate Finance Committee, which confirmed the administration’s support of an additional coronavirus relief bill with targeted federal objectives. Both Powell and Mnuchin are scheduled to make additional public statements this week on the federal government response to the economic impact of the pandemic, which could provide clarity on the expected nature and timeline of any further stimulus measures.

The big economic report this week is the November employment report. Economists forecast 466,000 net new jobs, down from 638,000 in October. They see the unemployment rate dipping from 6.9 percent to 6.8 percent. Hourly earnings growth is expected to hold steady at 0.1 percent.
Manufacturing PMIs will be released today. The flash PMI for the United States showed the manufacturing sector improved in November. Readings for Europe will be closely watched given the resurgence of lockdown policies in many countries. The services PMIs are out on Thursday. The flash reading was in November too, but economists predict the final reading will come down slightly as lockdowns dent activity.
Motor vehicle sales are out this week. Analysts project an annualized sales pace of 16.2 million vehicles, down slightly from October’s pace of 16.7 million.
Tesla (TSLA) jumped following the Standard and Poor’s announcing the stock will enter the S&P 500 Index at its full weighting. It will be the sixth-largest company in the index, ahead of Berkshire Hathaway (BRK.A). Analysts estimate about $11 billion worth of shares must be purchased by S&P 500 index funds ahead of inclusion on December 21.
Salesforce (CRM), Splunk (SPLK), Okta (OKTA), CrowdStrike (CRWD), Five Below (FIVE), DocuSign (DOCU), Ulta Beauty (ULTA), Dollar General (DG), Kroger (KR) and Big Lots (BIG) report earnings this week.