Market Perspective for November 21, 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.

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