The Dow Jones Industrial Average hit and closed above 30,000 on Tuesday for the first time since its inception in 1896. Vaccine sentiment reignited the recovery rally on hope that the economy will soon get back to normal, and was topped off by the GSA clearing the way for a presidential transition process and reports that Janet Yellen could head up the Treasury.
The biggest shopping weekend of the year is here, with bargain hunters across the U.S. planning to spend the next few days searching for discounts in stores and online despite the coronavirus pandemic. With rising wages and increasing consumer confidence, U.S. holiday sales are expected to grow between 3.6% and 5.2%, compared with the 4% growth last year, while online sales are seen rising 20% to 30%, according to the National Retail Federation.
Markets gained this week. The S&P 500 rose 2.3% and closed at 3,638. The Dow Jones gained 2.23% and closed at 29,910. Year-to-date, the S&P 500 is up 14.52% and the Dow Jones is up 7.04%.
Yields rose slightly this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.37% and 0.84, respectively.
The spot price of WTI Crude rose this week. Prices rose 7% and closed at $45.39 per barrel. Year to date, Oil prices are down -25.66%.
The spot price of Gold fell by -4.49% and closed at $1,786.99 per ounce. Year to date, Gold prices are up 17.78%.
Initial jobless claims increased to 778k for the week ended November 21, against expectations for a decline, and the 4-week moving average fell by 4k to 749k.
Third-quarter real GDP growth was unrevised at +33.1%, in line with consensus expectations.
The Conference Board index of consumer confidence fell by 5.3 points to 96.1 in November, below expectations for a smaller decrease.
The FHFA house price index increased by 1.7% in September, above consensus expectations for a more modest increase.
Fact of the Week
It took less than four years for the Dow Jones Industrial Average to climb from 20,000 to 30,000 (Jan 2017 – Nov 2020). It took 18 years (1999-2017) for the index to reach 20,000 from 10,000, and 103 years (1896-1999) to reach 10,000 from its original inception (Source: Yahoo Finance)
The United States reported a record 180,000 new cases of coronavirus yesterday, prompting the CDC to urge Americans to stay home for the Thanksgiving holiday. Also, the level of hospitalizations has doubled in the past two weeks, causing the level of deaths to increase as well. Several individual states throughout the week have put in place additional restrictions that include curfews for non-essential businesses, a ban on gatherings with people outside of your household, and capacity limits for retailers. Additional positive vaccine data rolled in this week from Moderna and Astrazeneca as Pfizer submits its application to the FDA for their emergency-use designation. Dr. Anthony Fauci has expressed concern about skepticism as it relates to vaccines, he told reporters this week that “if we have an effective vaccine and 50% of the population refuses to take it, you still have a considerable public-health challenge”. Pfizer CEO Albert Bourla stated that the first doses of the vaccine could be distributed within hours of approval.
On Thursday evening, Treasury Secretary Mnuchin requested that the Federal Reserve let five of the nine credit facilities put in place as part of the CARES act expire on December 31st. Secretary Mnuchin stated that the facilities have “clearly achieved their objective” and bond issuance volumes have returned to their pre-COVID-19 levels. The Federal Reserve issued a statement reading “The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy.” Mr. Mnuchin also argued that the funds need to be reallocated to the people that need it, and not to buy bonds, referring to the approximately $455 billion remaining from the CARES Act.
Markets pulled back this week. The S&P 500 fell -0.73% and closed at 3,558. The Dow Jones lost -0.65% and closed at 29,264. Year-to-date, the S&P 500 is up 11.95% and the Dow Jones is up 4.69%.
Yields fell this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.37% and 0.83%, respectively.
The spot price of WTI Crude rose this week. Prices rose 5.03% and closed at $42.15 per barrel. Year to date, Oil prices are down -30.97%.
The spot price of Gold fell by -0.89% and closed at $1,872.35 per ounce. Year to date, Gold prices are up 23.40%.
Initial jobless claims rose to 742,000 and the four-week moving average of claims fell by 14,000 to 742,000. Claims fell by 22,000 in Illinois, 9,000 in Florida, and by 8,000 in Washington. Claims rose by 32,000 in Louisiana, 10,000 in Massachusetts, and by 6,000 in Texas
The Philadelphia Fed manufacturing index fell by 6.0 points to 26.3 versus expectations for a reading of 22.5
Retail sales rose by 0.3% versus expectations for an increase of 0.5%
Retail sales ex-auto & gas rose by 0.2% versus expectations for an increase of 0.6%
Import prices ex-petroleum was flat versus expectations for an increase of 0.3%
Industrial production rose by 1.1% versus expectations for an increase of 1.0%
Business inventories rose by 0.7% versus expectations for an increase of 0.6%
The level of housing starts rose by 4.9% to a seasonally-adjusted-annualized-rate of 1.53 million versus expectations for an increase of 3.2%
Existing home sales rose by 4.3% to a seasonally-adjusted-annualized-rate of 6.85 million units versus expectations for a decline of -1.1%
Fact of the Week
If a trade bought the SPY ETF at the open and sold it at the close every day since the start of 1993, they would be down 10% over the 27 year period. If, instead, they had purchased the SPY ETF at the beginning of 1993 and reinvested the dividends, they would be up over 1270% (Source; Bespoke Research, Bloomberg).
Pharmaceutical giant Pfizer Inc. and its German biotech partner BioNTech released data Monday morning showing that its vaccine is 90% effective. The effectiveness rate of the Pfizer vaccine is far higher than the 44% effectiveness rate of the flu vaccine and is comparable to the rates seen for Mumps and Chickenpox. Pfizer CEO Albert Bourla told reporters that the trial will be finished by the end of November and is expected to gain emergency-use approval by the end of this year. Dr. Scott Gottlieb stated that the timeline for mass vaccination is late February/early March and that it may not be broadly available until the end of the second quarter/beginning of the third quarter of next year. The distribution of the vaccine is expected to be complex and expensive, as it has a short shelf life and must be stored at -94 degrees Fahrenheit. Dr. Anthony Fauci told reporters that biotech company Moderna’s vaccine might exhibit similar results to Pfizer’s.
New daily coronavirus cases in the United States are surging as 150,530 new cases were reported yesterday and the 7-day average in new cases reached 130,000 which is about 100,000 higher than where it was in September. There are currently about 67,000 patients being treated for coronavirus in U.S hospitals, higher than levels seen in April. Yesterday, Chicago Mayor Lori Lightfoot announced a stay-at-home advisory for the city after seeing a record spike in new infections and Illinois Governor J.B. Pritzker announced that the state is on the verge of new shutdowns as well. New York City Mayor Bill De Blasio announced today that schools will close and move to remote learning once a seven-day positivity rate of 3% is breached, the rate is currently at 2.83%. New daily cases across Europe are beginning to peak and turn lower after local lockdowns have been mandated in most countries.
Markets continued to rally this week. The S&P 500 rose 2.16% and closed at 3,585. The Dow Jones spiked 4.19% and closed at 29,479. Year-to-date, the S&P 500 is up 12.77% and the Dow Jones is up 5.37%.
Yields rose this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.40% and 0.89%, respectively.
The spot price of WTI Crude rose this week. Prices rose 8.19% and closed at $40.18 per barrel. Year to date, Oil prices are down -34.20%.
The spot price of Gold fell by -3.24% and closed at $1,888.12 per ounce. Year to date, Gold prices are up 24.44%.
Initial jobless claims fell to 709,000 and the four-week moving average of claims fell by 33,000 to 755,000. Claims fell by 15,000 in Georgia, 9,000 in New Jersey, and by 8,000 in Texas. Claims rose by 10,000 in Washington and by 2,000 in Virginia.
The consumer price index (CPI) was flat versus expectations for an increase of 0.1% and the year-over-year rate rose by 1.2% versus expectations for an increase of 1.3%
Core CPI was flat versus expectations for an increase of 0.2% and the year-over-year rate rose by 1.6% versus expectations for an increase of 1.7%
The producer price index (PPI) rose by 0.3% versus expectations for an increase of 0.2%
PPI ex-food and energy rose by 0.1% versus expectations for an increase of 0.2%
The University of Michigan’s index of consumer sentiment fell by 4.8 points to 77.0 in the preliminary report versus expectations for a reading of 82.0
Fact of the Week
Chinese state-owned enterprises represented 25% to 28% of the entire Chinese economy over each of the last 20 years (source:Gavekal Research).
The roller coaster ride that is the 2020 presidential election continues today, as absentee ballots in battleground states Nevada, Pennsylvania, Georgia, North Carolina, Alaska, and Arizona are still being counted. Contrary to what the polls suggested, the results on Tuesday night indicated that President Trump was likely to win the election, however as absentee ballots were counted throughout the week, Joe Biden took the lead in several key states. As it stands today, there is a large indication that Joe Biden will win the election, and he is expected to address the nation tonight. This is not without threatened litigation by President Trump, who claims that the election is being stolen due to orchestrated Democrat voter fraud in key battleground states. Also contrary to polling, Republicans have picked up six House of Representatives seats and have lost one Senate seat, pending further results. More clarity on results is expected going into the weekend, but anticipated litigation by the President could lead to some more uncertainty in the longer run.
The fate of the next fiscal stimulus bill is being questioned after Senate Majority Leader Mitch McConnell has stated that the upbeat jobs report this morning and the 6.9% unemployment rate “clearly ought to affect the size of any additional stimulus package we do”. Prior to the surprise jobs number and lower-than-expected unemployment figure, Senate Republicans had proposed a $500 billion relief bill, compared to the administrations $1.9 trillion proposal last month. Larry Kudlow also helped pour cold water on the hopes of a large stimulus package after he stated that “we’re not interested in you know two or three trillion” citing the jobs report this morning.
Markets surged this week in the best market week since April. The S&P 500 jumped 7.36% and closed at 3,509. The Dow Jones rose 6.89% and closed at 28,323. Year-to-date, the S&P 500 is up 10.32% and the Dow Jones is up 1.13%.
Yields fell slightly this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.36% and 0.82%, respectively.
The spot price of WTI Crude rose this week. Prices rose 4.52% and closed at $37.41 per barrel. Year to date, Oil prices are down -38.73%.
The spot price of Gold rose by 3.93% and closed at $1,952.61 per ounce. Year to date, Gold prices are up 28.69%.
Initial jobless claims fell to 751,000 and the four-week moving average of claims fell by 4,000 to 787,000. Claims fell by 9,000 in Massachusetts, 8,000 in Michigan, and by 6,000 in Georgia. Claims rose by 22,000 in Illinois, 3,000 in Kentucky, and by 3,000 in Pennsylvania.
Nonfarm productivity rose by 4.9% in the third quarter versus expectations for an increase of 5.6%
Unit labor costs fell by -8.9% in the third quarter versus expectations for a decline of -11.0%
The ISM manufacturing index rose by 3.9 points to 59.3 versus expectations for a reading of 56.0
The ISM non-manufacturing index fell by 1.2 points to 56.6 versus expectations for a reading of 57.5
Construction spending rose by 0.3% versus expectations for an increase of 1.0%
Wholesale inventories rose by 0.4% versus expectations for a decline of -0.1%
Factory orders rose by 1.1% versus expectations for an increase of 1.0%
Private sector employment in the ADP report rose by 365,000 versus expectations for an increase of 643,000
Nonfarm payrolls rose by 638,000 versus expectations for an increase of 580,000
Average hourly earnings rose by 0.1% versus expectations for an increase of 0.2% and the year-over-year rate rose by 4.5%
The unemployment rate fell to 6.9% versus expectations for a reading of 7.6%
Fact of the Week
The state of Ohio has correctly backed the winner of the US presidential election in each of the last 14 races for the White House, i.e., 1964-2016 (source: USConstitution.net).
Despite early polling pointing to a decisive victory for Joe Biden and the Democrats gaining control of the Senate in what would be a Blue Wave, the actual votes indicate a much different result than was anticipated, creating somewhat of a Purple Haze. The race for President remains undecided this morning with several states still counting ballots, including record numbers of mail-in and absentee ballots, and the process could last for days. Control of the Senate also remains unresolved but appears to be leaning toward a retention of the majority by Republicans. This is not a terribly surprising scenario. We saw in 2016 the inherent flaws in polling data that skew toward Democratic candidates and thought these races would be much closer than the polls indicated and positioned our portfolios accordingly.
Despite the election uncertainty, and the Doomsday fears of many investors, stock market reaction has largely been positive with futures pointing toward a strong open and technology stocks leading. Bond yields have also dropped overnight as the complexion of the races have shifted. These market actions point to the anticipation of a divided government, under which expectations for the size of further stimulus are lowered.
This is clearly a fluid situation and we will continue to monitor closely as it develops over the coming hours and days. As always, please do not hesitate to reach out to your Relationship Manager or Investment Officer if you have any questions.