The ETF Investor Guide for December 2020

The ETF Investor Guide for December 2020

The December Issue of the ETF Investor Guide is AVAILABLE NOW! Links to the December Data Files have been posted below. Market Perspective: Value Stocks Will Continue to Gain Steam December […]

Market Perspective for December 22, 2020

The stock market started the week on a stagnant note in response to the news of a newly identified strain of coronavirus that has been identified in the United Kingdom. As infection rates attributed to this new coronavirus strain have been spiking in recent days, the rest of the world has been balancing this new development against the general optimism over the effectiveness and widespread availability of vaccine options. Over 20 countries have just recently imposed strict travel bans against UK residents in light of the increased infectivity rate of this new variant of the virus, which could have a chilling effect on economic activity in that region during the last stretch of the holiday season.

Despite this negative development on the pandemic front, the Dow managed to end the day on a positive note with a gain of 0.12 percent. While the Dow took a hit in the middle of the day with a loss of 400 points or 1.4 percent, it was able to turn the tide by the end of the trading session. The Russell 2000 Index mirrored the Dow’s slightly upward trajectory for Monday with an increase of 0.02 percent for the day. The Nasdaq and the S&P 500 both slightly slipped for the day with losses of 0.1 percent and 0.42 percent, respectively. Gold prices were up on Monday with an increase of 0.31 percent to $1,883.93 per ounce.

While technology did well on Monday, with SPDR Technology (XLK) rising 0.10 percent, the best performing sector was financials. SPDR Financial (XLF) climbed 1.35 percent. SPDR Real Estate (XLRE) fell 2.17 percent and SPDR Utilities (XLU) slid 1.21 percent. This indicates investors were trading based on rising interest rate expectations.

The 10-year Treasury yield was affected by the concerning pandemic-related news from the UK. On Monday, the 10-year Treasury yield fell to 0.905 percent, which was a loss of almost five basis points. In addition, the 30-year Treasury bond yield fell 1.646 percent, a loss of six basis points.

U.S. lawmakers announced Monday that an agreement has been reached on a coronavirus stimulus package to the tune of $900 billion. One of the highlights of the second round of stimulus relief is the direct payment of up to $600 per American, which is expected to be deposited directly into taxpayers’ bank accounts in the coming weeks. In addition, the $300 federal enhancement of unemployment benefits has been renewed in this most recent stimulus package.

The public rollout of the initial coronavirus vaccine distribution for the Moderna (MRNA) vaccine began Sunday for the first round of healthcare workers and first responders. This initial vaccine delivery consists of about 6 million doses and follows the distribution of the initial rounds by Pfizer (PFE) and BioNTech (BNTX).

One of the most anticipated performers for the market opening this week was Tesla (TSLA). By Monday’s close, Tesla shares were down .06 percent. This minor drop in share prices is attributed to the recent announcement by Apple (AAPL) that it will begin to implement its plans to manufacture electric vehicles as a competitor to Tesla. Conversely, Apple shares ended the day on a positive note with a gain of 1.24 percent.

Travel-related stocks, particularly cruise lines and airlines, took a hit on Monday on the heels of the recently renewed UK lockdowns. Norwegian Cruise Line (NCLH) dropped 1.59 percent for the day, Royal Caribbean (RCL) slipped 0.7 percent, United Airlines (UAL) fell 1.5 percent, and American Airlines lost 2.5 percent, which was a recovery from its earlier Monday losses of 5 percent.

The Bureau of Economic Analysis will announce its revised third quarter GDP estimate this week. Economists predict no change in the 33.1 percent growth rate.

The Conference Board will release its December consumer confidence index today. Analysts expect a small increase. The University of Michigan consumer sentiment survey is out on Wednesday. Analysts see a small drop in that survey.

Existing home sales for November will be out today. New home sales data will be released Thursday. Economists estimate an annualized sales pace of 6.69 million for the former and 1.004 million for the latter.

Wednesday will see the release of the most recent unemployment claims and personal income data.

 

On Thursday, many bond markets around the world will close early before the Christmas holiday. Markets are shut down on Friday for the holiday as well.

Market Perspective for December 20, 2020

Markets declined on Friday, even though the Nasdaq and the Dow managed to hit new intraday trading records. The S&P 500 declined 0.35 percent, but the much-anticipated addition of Tesla (TSLA) to the index is a potentially positive market mover. Tesla will account for approximately 1.5 percent of the S&P 500 Index.

Similarly, the Dow dropped 0.40 percent. The Nasdaq slipped 0.07 percent. The Russell 2000 Index wrapped up the trading day on Friday with a loss of 0.41 percent. Even with the dip on Friday, there was still positive movement for all over the week. The Nasdaq increased 3.05 percent on the week, while the Dow gained 0.44 percent. and the S&P 500 rose 1.25 percent. The Russell 2000 gained 3.05 percent.

SPDR Technology (XLK) gained 3.19 percent last week as the technology sector outperformed its competitors. SPDR Consumer Discretionary ETF (XLY) increase of 2.36 percent. SPDR Materials (XLB) returned 1.83 percent.

Gas prices per gallon were up on Friday by 0.22 percent to $2.71 per gallon. Crude oil fell by 0.04 percent to $49.08 per barrel. SPDR Energy (XLE) slipped 4.18 percent. Over the past two months, the fund has risen 30.55 percent.

On Thursday, the FDA’s advisory panel recommended emergency use approval for Moderna’s (MRNA) vaccine. Modern shares dipped slightly overnight on the release of this announcement. This marks the second coronavirus vaccine option to be recommended by the FDA after Pfizer’s (PFE) vaccine was also approved earlier this month.

The economy remained on solid footing in December despite tightening lockdown policies. The flash manufacturing PMI showed that sector expanding at roughly the same rate as November. The flash services PMI slipped for December and fell three points as restaurants and other businesses affected by lockdowns suffer, but it remains well in expansion territory. The final PMIs will be released in early January.

Retail sales were also impacted by lockdowns. Physical retailers, restaurants and other in-person services saw sales decline, while online retailers and grocery stores saw gains. Overall, sales ex-autos dipped 0.9 percent.

Housing data showed the housing boom accelerated in November. Starts and permits climbed higher than expected to annualized paces of 1.547 million and 1.639 million, respectively. Homebuilder sentiment fell in December, partially due to rising lumber prices which is itself a positive sign of demand. And although sentiment fell, the reading was the second highest in the history of the survey behind last month’s record high.

There was a dip in the otherwise positive trend in the U.S. labor market. The number of jobless claims was reported as the highest number since the start of September. The positive flipside of this seemingly negative report is that disappointing jobless claim data adds more pressure on lawmakers to move urgently to agree on and approve a second coronavirus stimulus relief package.

The holiday shopping season has put a strain on package delivery services with the surge of online purchases. FedEx (FDX) shares dropped by 5.71 percent on Friday upon the news of significantly higher costs reported in its quarterly expenses. The company has been challenged by skyrocketing demand for holiday package delivery more than any previous year. UPS (UPS) was subject to the same delivery demand dynamics as FedEx and saw its shares take a similar hit as a result.

After completing its second round of stress test, the Fed announced on Friday that it will permit large banks to resume their practice of share buybacks to start in the first quarter of next year. Dividends will be capped by the Fed, but this announcement is a major boon for shareholders who depend on share repurchases for up to 70 of the capital payouts that they receive. This news drove a spike in shares for large banks, with JPMorgan (JPM) shares rising by 5.3 percent on Friday. Goldman Sachs (GS) shares gained 4.4 percent for the day, while Wells Fargo (WFC) increased 3.5 percent.

The Fed publicly signaled an improved economic forecast outlook for the end of this year and the beginning of 2021. Rather than maintain its previous prediction from back in September of a decline in GDP of 3.7 percent, the Fed indicated an improved outlook of a reduction of 2.4 percent. In addition, the Fed released an improved forecast on GDP for 2021 with a bump from 4.0 percent over the year to 4.2 percent in light of enhanced economic recovery conditions.

As expected, the Fed confirmed at its meeting last week that interest rates would remain at almost zero. Along those same lines, the Fed officially announced that it stands by its previous inflation estimate for the coming year at 1.2 percent, which raises no immediate cause for alarm in the short-term.

The Fed’s revised economic outlook on unemployment data reflects more positive news. Last week, it reduced its prediction for the overall 2020 unemployment rate to 6.7 percent, down from 7.6 percent.