Market Commentary for the week ending November 27th, 2020
- Neary every investment rose, except for gold, with small stocks maintaining their lead.
- Economic data continues to be mostly strong but the jobs market is showing some signs of concern.
- Select European markets surge in November.
Year-to-date investors have pulled a total of $404 billion out of stock mutual funds and exchange-traded funds. This is the biggest exodus in more than a decade and a bit odd given the surge higher in stock prices since the pandemic low in March.
The Dow Jones Industrials reached another milestone this week closing above 30,000 for the first time in history. Although such a milestone can’t go unnoticed, it’s difficult to find any real meaning in such numbers. The accompanying tables shows the dates when other milestones were reached in this index’s 124 year history.
This Week’s Performance Highlights
- Large U.S. stocks, as measured by the S&P 500, added to their year’s gain up another +2.3% during the shortened holiday week. The Dow Industrials, in spite of reaching a new milestone this week, lagged slightly gaining +2.2%.
- Small U.S. stocks beat all others again this week climbing +3.9% and are now higher by +12.% in 2020. More impressive is that these stocks have rocketed higher by more than +20% since the start of the month!
- The NASDAQ outperformed this week rising +3.0% helped by nice gains in Alphabet (GOOG), Amazon (AMZN), and Facebook (FB) although Apple (AAPL), the biggest of the tech stocks, slipped -0.6%.
- Every sector was higher with energy stocks far outpacing all others for another week up +8.7%. Financials were a distant runner up gaining +4.7%. Technology stocks, dominant leaders not long ago, posted gains similar to the overall market up +2.1%.
International stocks registered strong gains as well with developed markets up +1.9%. The Eurozone region was the strongest helped by markets in both Spain and Italy up +3.5% and +3.7% respectively. As you can see in the below graph, several Eurozone markets have surged in November.
- Emerging markets gained an average of +1.9% bring their year-to-date returns to +12.2%. China was a strong performer up +2.5% while Hong Kong lagged well behind up just +0.3%.
- Gold continued its decline off -4.5% for the week and now lower by -8.4% since the first reports of a vaccine. On the other hand, commodities have gone the opposite direction gaining another +3.5% for the week and up +9.9% since the first vaccine report three weeks ago.
- Real estate stocks have lagged behind up +0.3% this week and lower for the year by -12.9%.
- Bond prices were unchanged holding onto a respectively +7.4% year-to-date performance.
Consumer confidence fell in November as measured by the Consumer Confidence Index coming in at a reading of 96.1 down from 101.9 the month before. Of the multiple components within this report, consumers’ views of the current economy were little changed while their expectations for the next six months fell sharply. Rising COVID cases and uncertainty about the election could be blamed. Furthermore, confidence remains well below the high of 132.6 earlier in the year.
Durable Goods Orders, orders for long-lasting goods such as computers and equipment, continued their recovery increasing +1.3% in the most recent month. This was better than double economists’ estimates but does represent a slowdown from the prior months. Some of the sectors gaining for the month included computers, networking equipment, fabricated-metal parts, and military-related equipment while orders for new cars and trucks dropped -3.2%. Excluding orders for military equipment, total orders only rose +0.2%.
As the accompanying graph shows, orders are just shy of the pre-pandemic high off just -3.4%. After falling by nearly one-third in just two months, orders have rapidly recovered. This is great news when compared to the many years it took to recover from the 2008 financial crisis.
The robust pace of new homes sales persisted in the most recent month coming in at an annualized rate of 999,000. This was off fractionally from the month before but is a whopping +41.5% higher than the same period a year ago. This boom in sales has extended for multiple back-to-back months but some are concerned that supply constraints and rising prices could slow sales in coming months.
The Case-Shiller National Home Price Index, measuring prices across the entire country, surged +7.0% in October outpacing expectations of a +5.4% gain. Some of the cities seeing the biggest gains were Phoenix, Seattle, and San Diego while Detroit was the only major city experiencing a decline. Low mortgage rates and people moving from cities to suburbs likely explain some of these gains.
Initial Jobless Claims disappointed for a second consecutive week increasing by 30,000 to 778,000 compared to estimates of 720,000. These back-to-back weekly rises are being blamed on increased layoffs due to rising COVID cases. In addition to rising initial claims, 135,297 more people are collecting continuing benefits from the multiple federal program bring that total to 20.45 million. Expectations are that it will take several months, if not longer, for the jobs market to fully recover from the pandemic.
Upcoming Economic Reports
- Employment Report
- Initial Jobless Claims
- ISM Manufacturing Index
- ISM Services Index
- Factory Orders