Market Perspective for December 1, 2020

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.

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