Market in a Minute Nov 9-13, 2020
by Sheila & Rich Jamison
Last week was unusual, even judged against the weeks we’ve had since COVID’s appearance which have made the unusual usual. The week’s story was the welcome expectation-surpassing Pfizer vaccine announcement. That, in turn, eclipsed the ‘little stuff’ – such as Joe Biden is the President Elect and rampaging new COVID cases. The usual suspects, from earnings to no-stimulus-yet, were likewise ignored by the market.
Stocks traded in record territory on hopes that economies will be able to open sooner than anticipated. The optimism stemmed from Monday’s Pfizer (& BioNTech) news of a potentially highly (over 90%) effective coronavirus vaccine, probably available in 2021. All major indexes set new record highs.
With the idea of an open economy, money began flowing disproportionately from the stay-at-home (mostly mega-cap growth) stocks into economically sensitive (mostly value) stocks. Thus, the S&P 500 and the Russell 2000 indexes closed at record highs while NASDAQ ended the week in the red.
The 10-year US Treasury yield rose to 0.89%, though selling pressure took it to 0.97% at the height of the vaccine euphoria on Monday. WTI crude oil rose to $40.50 from $37.60 a week ago. Volatility (i.e., VIX) declined further, to 23.1 from 24.9.
We had good news/bad news. The good news was the Pfizer vaccine announcement, which instilled hope the economy could return to pre-pandemic levels in 2021. On an individual level, it instilled hope that we might soon restore a sense of normalcy.
The bad news was a dramatic uptick in US COVID-19 cases, setting new record numbers. Positive tests exceeded 180,000 on Friday (only eight days after crossing 100,000) and totaled over 3/4 of a million new cases for the week. Hospitalization and death rates are trending higher also. A glimmer of hope while we wait that vaccine lies in the fact some European countries are starting to see an easing in the new infections rate after recent restrictions were renewed.
The markets also got a boost as political uncertainty was reduced when Joe Biden was projected as the next president. It is widely felt that the Trump campaign legal challenges will not change the outcome. Two Georgia runoffs (January 5) will determine if Republicans retain their Senate majority.
Investors had been anticipating a moderately efficacious coronavirus vaccine sometime toward the middle of 2021. Monday’s news that a stronger one could become available in reasonable quantities — and in the first half of 2021 — brought a change of heart. This propelled beaten-down value stocks higher while undermining the case for growth stocks. Amid the rotation, the broad market has continued to rally.
Energy led sectors with an impressive 16.5% gain on the week. Financials and industrials rose 8.3% and 5.3%, respectively. Consumer discretionary fell 1.1% and information technology dropped 0.4% amid profit-taking activity in some of the mega-cap stocks.
There was no movement toward resolving a standoff over the size and scope of additional pandemic relief. On Thursday, Speaker Pelosi said that a stimulus package has to be at least $2.2 trillion in new spending. Leader McConnell continues advocating for a more targeted package around $500 billion. Unless there is an agreement before December 31, a number of pandemic-related programs will lapse, including funding for extended jobless benefits and Fed programs backstopping business and municipalities.
With 92% of S&P 500 companies Q3 results in, earnings growth is running at -7.1% and sales off 1.6% year-over-year. So far, 89% of the reports have exceeded expectations.
Around the World
The European Parliament and European national governments reached a budget agreement that clears the way for the funding of the €1.8 trillion recovery package which will offer a lifeline to heavily indebted European countries hit hard by the pandemic.
European Central Bank President Christine Lagarde said all policy options are on the table. Continued monetary support is needed to achieve the ECB's inflation aims and to support economic growth, she said, adding that that the Eurozone economy faces headwinds from the spread of the coronavirus and the resulting social distancing restrictions.
The German ZEW economic sentiment index plunged from 56.1 in October to 39 in November as a second wave of COVID-19 infections swept Europe.
Chinese regulatory action undermined technology shares as the country sought to root out monopolistic practices in the sector. Authorities are worried about a K-shaped corporate recovery, led by Internet stocks and technology companies while the traditional manufacturing and services industries lag. Meanwhile, president Trump issued an executive order making it illegal for US citizens to own stock of 31 Chinese companies controlled by China’s military, Huawei being the most familiar name.
Nikkei News reported this week that over 30% of Japanese-listed companies have revised up net profit forecasts for this fiscal year.
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