- Domestic stocks posted strong gains throughout the shortened Thanksgiving holiday week, recouping the prior week’s losses.
- The S&P 500 closed at a record high of 3,638 on Friday, in what was a shortened, half day session. However, this did not surpass the all-time intraday high which was 3,645.99, set on 11/09/20.
- Themes remained largely unchanged from previous weeks with the market’s strength being attributed to vaccine optimism.
- Gold continued its fall from grace, declining 4.5% over the five-days and closed below $1,800/oz for the first time since July.
- Economic data remained mixed during the quiet holiday week, with the release of new U.S. home sales, initial jobless claims, continuing claims, and consumer spending (out on Saturday) in regards to Black Friday.
- To start the week of November 30th, equities finished lower on the day however rallied marginally off Monday morning session lows after bottoming out shortly before 11am ET.
- Despite the move lower to round out the month, the S&P 500 posted a 10.8% return for November, marking its best November since 1928, when the benchmark climbed 12%.
- We continue to see a rotation into value/economically sensitive sectors as many of the best performing sectors including Energy, Financials and Industrials all posted large monthly gains in November.
- In what was the most widely watched addition to the S&P 500 in recent memory, it was decided that Tesla would be added at its full float-adjusted market cap, making the $538B company the largest to enter the index on its debut. The previous largest was Berkshire Hathaway which was worth about $127B when it was added in 2010.
- Germany Chancellor, Angela Merkel, extended the four week partial lockdown which started on November 2nd, until at least December 20th. Despite slowing virus spread, the chancellor said “we can’t be satisfied with this partial success. We need yet another act of resolve.” The DAX index gained 1.51% last week.
Domestic stocks posted strong gains throughout the shortened Thanksgiving holiday week, recouping the prior week’s losses. Multiple indices touched fresh all-time highs including the Dow, which broke the 30K level, while the S&P 500 closed at a record high of 3,638.
Themes remained largely unchanged from previous weeks with market strength being largely attributed to vaccine optimism. Value outperformed growth once again, however the rotation into cyclicals/re-opening trade appeared to lose steam. Energy, Financials, and Consumer Discretionary were the standouts on the week as growth stocks were on track for their worst month relative to value since 2001. Gold continued its fall from grace, declining 4.5% over the five-days and closed below $1,800/oz for the first time since July.
Much of the risk-on tone continued to be driven by positive announcements from those companies who have vaccine candidates. AstraZeneca (AZN) was the latest company releasing trail data, saying their efficacy rate was in the 90% range, following the likes of Pfizer (PFE), BioNtech (BNTX), and Moderna (MRNA). However, even with the positive leaning news, the narrative seemingly shifted from developing a vaccine that would pass FDA standards, to the distribution challenges and timelines faced by governments and companies.
Although it was a quiet holiday week, there was some talk amongst media outlets of a “stalling U.S. recovery” as economic data underwhelmed. The brightest spot of the economic recovery (thus far) has been, housing, which appeared to falter slightly with the release of New U.S. home sales data showing sales of new single-family homes fell 0.3% from October. While a 999K annualized rate is well above pre-pandemic levels, additional incremental purchases may face headwinds as infections begin to pick up and new restrictions threaten the overall recovery. Additionally, initial jobless claims unexpectedly increased to 778K in the week ending November 21st, the most in the last five weeks according to the Department of Labor.
However, it appears that American consumers appear to be more well- off then perceived, which is indicative by strong Black Friday sales, even if more brick-and-mortar stores currently remain closed. Sales on the unofficial holiday topped $9.0B online, an increase of 21.6% over 2019, when consumers spent $7.4B in online sales according to Adobe Analytics. This year’s Black Friday sales, which primarily took place online, was the second largest online spend in U.S. history, coming in only behind Cyber Monday of 2019. However, it is worth noting that Adobe Analytics believes Cyber Monday in 2020 will become the largest online sales day in history, with consumers spending between $10.8B and $12.7B, an increase of 15% to 35% year-over-year.
With the additional positive data releases, there has been very little movement on the stimulus front. Initially, the NY Times had reported that President-elect Biden was pushing various leaders of his own party to make a quick deal, despite it being below the party’s previous target of $2T. In the near term, a path towards a comprehensive stimulus plan seems highly unlikely with both parties remaining far apart on size and scope for any deal.
Equities finished lower on the day, however rallied marginally off Monday morning session lows. The NASDAQ was the best performing index, closing down only 6bps on the day, followed by the S&P 500, Dow Jones Industrial, and Russell 2K. Despite the move lower to round out the month, the S&P 500 posted a 10.8% return for November, marking its best November since 1928, when the benchmark climbed 12%. The Dow followed suit, gaining 12.14%, notching its best month in 34 years since 1987. The whopping monthly advances came on the back of positive headlines related to a potential COVID-19 vaccine. With risk assets continuing their rally, Gold had its worst performing month in four years, extending its fall from August’s all-time highs.
While a rotation into value/economically sensitive sectors has taken place throughout the month and driven much of the gains in major indexes, many of the top performing sectors were amongst the worst performers in Monday’s session. Energy, Financials and Industrials were some of the largest laggards on the day, with profit taking seen after large gains over of 26.5%, 16.75% and 15.6% in November.
Despite it appearing to be a busy day from a volume perspective, under the surface it was a fairly quiet session being primarily driven by vaccine-related names and TSLA. MRNA traded over 73M shares on Monday after applying for Emergency Use Authorization (EUA) with the FDA and European Medicines Agency following their analysis of vaccine data.
The $10.5B “total value” traded for the stock was the second largest ever recorded as illustrated by the graphic to the right. Other vaccine candidate-related names such as PFE, BNTX, and AZN also traded outsized amounts on the session.
Finally, in perhaps what was the most widely watched addition to the S&P 500 in recent memory, it was ultimately determined that TSLA would be added at its full float-adjusted market capitalization weight effective prior to the open of trading on Monday, December 21st. Adding the $538B company to the U.S. benchmark is expected to send ripples through the market as nearly $11T globally is tied to the S&P 500. Money managers linked to the index will potentially need to sell several other companies in order to create room for the new addition.
THIS WEEK INTERNATIONAL
Last week, global equities advanced 2.34% higher led by Energy and Financials. Every sector was in the green as investors remained optimistic about a global recovery. The spread between Growth and Value narrowed further as value stocks gained 2.82% last week and growth stocks moved 2.06% higher. Volatility is stabilizing across the globe, which seems to imply increasing risk appetite from investors. For instance, volatility in the German DAX index reached a nine-month low of 22.02 last Friday, despite ongoing lockdowns and business restrictions. The next test of investors’ resilience will be the upcoming economic data, which is expected to be mixed.
Bank of France Governor, Francois Villeroy de Galhau, said that he is in favor of ending the dividend ban on European banks, sending Euro STOXX Banks 1.15% higher on Friday. The comment came after two other European Central Bank (ECB) members made similar suggestions. Besides lifting the dividend ban in December, the ECB is expected to be proactive on the monetary policy front after executive member Fabio Panetta said that “the consensual idea at the ECB Governing Council is that our instruments need to be recalibrated in December”. The Euro STOXX Index was up 1.83% last week, led by materials and banks.
The Chancellor of Germany, Angela Merkel, extended the four week partial lockdown which started on November 2nd, until at least December 20th. Despite slowing virus spread, the chancellor said “we can’t be satisfied with this partial success. We need yet another act of resolve.” Germany now registers over a million COVID-19 cases, 16,663 deaths, and 739,100 recoveries according to Worldometer. The DAX index gained 1.51% last week.
In the United Kingdom, Brexit talks continue as no deal has been reached between the UK and the European Union. The European Council will hold a summit from December 10-11th to discuss COVID-19, climate change, trade, security, and external relations. If there is no agreement by that date, the probability of a hard Brexit will be higher. December 31st is the hard deadline for the Brexit transition period. Without a deal, Britain will trade with the EU on World Trade Organization terms. The FTSE 100 was up 0.25% last week.
In China, industrial profits rose 28.2% year-on-year in October, which is the sharpest increase since 2012. While increasing demand and stronger exports explained the surge, the base effect inflated the perception of a recovery, given profits were down 9.9% last year at the same period. The China manufacturing PMI ticked up to 52.1 in November, improving from 51.4 a month earlier. Bloomberg Economics points out that “the manufacturing sector powered through holiday effects that tend to cause output to dip in October due to the golden week break and rise in November when there are more working days.” The Shanghai Composite Index was up 0.91% last week led by conglomerates, up 3.22%.
In Japan, the newly appointed Finance Minister, Taro Aso, asked financial institutions to provide smooth corporate lending to accommodate for a loan demand spike due to the global pandemic. In fact, weak consumer spending continues to shrink corporate margins as inflation remains negative. Bloomberg Economics forecasts the Japanese unemployment rate to rise 3.2% in the fourth quarter, from 3% in the third quarter. The NIKKEI 225 was up 4.38% last week.
Bank of Korea Governor Lee Ju-Yeol, said the Central Bank revised its GDP forecast for the year to account for the strength of the economy. He said, “the negative impact from the resurgence of the virus is still very big, but exports will likely outweigh that”. Bank of Korea estimates that the economy will shrink 1.1% this year and grow 3% in 2021. The KOSPI Index was up 3.13% last week, led by materials, up 7.79%. Textile and apparel lagged the index, down 2.77%.
India entered its first recession since quarterly GDP records started in 1996. According to the latest data from Central Statistics Office, the Indian GDP fell 7.5% year on year in the third quarter. The Oxford stringency index, which measures the strictness of government policies, shows that India implemented one of the strictest lockdowns in the world in March. Hotels, transport, and communications dropped 15.6% last quarter, while financial and real estate services 8.1% decline overshadowed the 3.4% expansion in agriculture. The Nifty 50 Index was up 0.85% last week.
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