Market Perspective for December 6, 2020

Last week was an excellent week for stocks as all major indexes experienced gains. Friday was a particularly strong day. The Nasdaq increased 2.12 percent on the week, the Russell 2000 Index 2.06 percent, the S&P 500 Index 1.67 percent, and the Dow Jones Industrial Average 1.03 percent.  On Friday, the S&P 500 rose 0.88 percent, the Dow 0.83 percent, the Nasdaq 0.70 percent, and the Russell 2000 gained an impressive 2.37 percent.  Relatively strong economic data bolstered the outlook on the sustainability and progress of the economic recovery, although lagging employment data released triggered concerns over the rate of private sector job growth.

The manufacturing PMIs published over the week signaled that important sectors remain in a healthy expansion territory. The Markit survey held steady at 56.7, while the ISM survey dipped to 57.5 percent. The Markit services PMI rose from 57.7 in October to 58.4 in November.  Construction spending climbed 1.3 percent in October with residential home construction helping drive growth. Reports show that motor vehicle sales hit an annualized pace of 15.6 million for the month. This was down slightly from 16.3 million, but not surprising given the spread of lockdown policies in some states last month.

Initial claims for unemployment fell to 712,000 in the week ended November 28, below forecasts of 780,000 and the prior week’s 787,000 claims. Continuing claims fell by nearly 500,000 persons. The pace of job growth came in under expectations for the month of November, according to payroll reports published this past week. The Bureau of Labor Statistics’ nonfarm payroll report showed 245,000 net new jobs in November, below forecasts of 432,000. This was also the slowest month of the last six for new job growth since May. However, the unemployment rate fell to 6.7 percent, while average hourly earnings increased 0.3 percent, both of those numbers beating expectations. Encouragingly, the health of wage growth and fewer job losses than expected over the month indicate a promising trend for the long-term economic recovery.

Weaker employment data along with strong data in other sectors create a “goldilocks” situation for the U.S. stock market given the Federal Reserve has stated that it will preserve the historically low interest rates until unemployment fully rebounds. As such, the longer the unemployment figures take to return to the pre-pandemic level, the more active that the Fed will be in intervening to boost the economy. This should hold true even with a near-term boost in economic activity and in spite of any whispers of concerns over a rise in inflation. Along those lines, this dynamic increases the likelihood of an additional coronavirus stimulus package.

The 10-year Treasury Yield broke through to its highest level of the economic recovery period to 0.98 percent on Friday. Financial shares, which are tied extremely close to interest rate fluctuations and projections, benefited significantly from this bump in the 10-year benchmark.

The U.S. Dollar Index broke down this week, losing 1.17 percent and falling to a new 30-month low. Renewed local lockdown policies across the country predictably boosted technology shares, which spurred the U.S. market to outperform foreign shares. iShares MSCI Emerging Markets (EEM) returned 1.62 percent this week, and the MSCI EAFE posted 1.16 percent in weekly returns.

Along with technology, the healthcare and energy sectors also had strong performances last week. SPDR Energy (XLE) advanced 4.42 percent as U.S. crude oil topped $46 per barrel for the first time in nine months. SPDR Healthcare (XLV) gained 2.83 percent, aided especially by the biotech sector. iShares Nasdaq Biotechnology (IBB) rallied 3.20 percent, and SPDR S&P Biotech (XBI) added 3.61 percent. SPDR Technology (XLK) increased 2.76 percent on the week. The outlier sector that took a bit of a hit on Friday was utilities, with a slip of around 1 percent.

The relatively strong stock market performance on Friday, and for the week overall, combined with strength in homebuilding and the healthcare, technology, and energy sectors helped position the market for a solid start to the coming trading week.

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