Market Perspective for December 13, 2020

Last week concluded on a mixed note. The S&P 500 fell 0.13 percent on Friday, the Dow rose slightly for a gain of 0.16 percent, and the Nasdaq lost 0.23 percent for the day. The Russell 2000 Index dropped 0.56 percent.

Small-cap and value sectors extended their recent market leadership, but a lack of further economic stimulus weighed on shares. On the week, the performance of the major indexes was slightly down, except for the Russell 2000 Index, which gained 1.02 percent.  The other indexes had losses of less than 1 percent, with the Dow down 0.57 percent, the Nasdaq 0.69 percent and the S&P 500 sliding 0.96 percent.

It’s also likely investors started selling to make room for Tesla (TSLA) in the S&P 500 Index. The stock will be the 5th largest company in the index when it joins next week. Index funds will position their portfolios ahead of the December 18 entry.

The lone winning S&P 500 sector for the week was energy. SPDR Energy (XLE) advanced 1.14 percent. SPDR S&P Oil & Gas Equipment & Services (XES) advanced 3.50 percent. First Trust ISE Revere Natural Gas (FCG) added 3.44 percent, and West Texas Intermediate crude drifted higher to close the week. Natural gas rebounded after plunging 20 percent. It closed Friday at $2.59 per mmBTU.

Initial claims for unemployment hit 853,000 last week, up from 716,000 a week prior as some states intensified lockdown policies. Continuing claims in state programs also ticked up after having fallen almost every week since peaking in the spring. Despite the uptick in first-time and continuing state unemployment claims over the week, the economy had 6.7 million job openings in October according to the latest report from the Department of Labor. That was up 200,000 from September.

Data on consumer and producer inflation released for November reflected a fairly muted trend. Consumer prices increased 0.2 percent, and core inflation climbed 0.2 percent as well for the month. The consensus forecast was expecting 0.1 percent. Producer prices grew 0.1 percent, in line with forecasts and down from 0.3 percent in October.

Even though renewed lockdown policies may have triggered an increase in unemployment claims, consumer sentiment reflects that consumers have largely refrained from fretting over the economic consequences of additional lockdown periods. As of the end of the week, the University of Michigan’s early read of consumer sentiment holds. The advance reading hit 81.4, well above forecasts of 75.5 and the 76.9 reading in November.

The 10-year Treasury yield held below 1 percent last week, closing on Friday at 0.89 percent. In turn, government bonds benefited from lower rates. iShares 20+ Year Treasury (TLT) climbed 2.31 percent on the week. Other bond funds posted relatively smaller moves. iShares iBoxx Investment Grade Corporate Bond (LQD0 rose 0.17 percent, while iShares iBoxx High Yield Corporate Bond (HYG) fell 0.21 percent.

The U.S. Dollar Index gained 0.22 percent this week. Bearish traders increased their bets against the greenback, making for the largest short position in history. Foreign shares slid against a stronger U.S. dollar and Brexit tensions. The United Kingdom says it will finally exit the European Union without a trade deal if no agreement is reached by December 31. This contributed to the sinking of the British pound of 1.56 percent on the week. Similarly, iShares MSCI Emerging Markets (EEM) declined 0.31 percent and iShares MSCI EAFE 0.44 percent.

Positive developments on the vaccine front, with recent announcements by the FDA of emergency authorization approval votes underway for the vaccine developed by Pfizer (PFE) and BioNTech (BNTX). With more details available for the public on the expected timeline for availability of a vaccine, the expectation is that consumer sentiment and the overall progress of the economic recovery will remain on course.

 

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