Conway’s QuickTake: Week of December 7, 2020
|Here’s What Happened Last Week: |
U.S. Equities and Economic Data/News
Four of the most well-known indices – S&P 500, Dow Jones Industrial Average, Nasdaq Composite, and Russell 2000 – closed the week all at new high levels for the first time since early 2018. Most sectors rose for the week led by energy. That sector rebounded after OPEC and other major oil producers agreed to reduce future production cuts more gradually by around 500,000 barrels per day. Utility stocks lagged after falling around 2%. Following Pfizer’s lead, Moderna also requested emergency use authorization for its vaccine from European and U.S. regulators. A response may come after the scheduled December 17th meeting. Most market-caps and styles rose across the board which reduced the outperformance between any specific categories. Small-cap value rose 2.6% which marginally led other sizes and styles.
Aside from the positive vaccine news related to the U.K.’s approval of Pfizer and BioNTech’s vaccine emergency use-case, the U.S. is awaiting an approval from the FDA which could happen this coming week. The U.S. Food and Drug Administration is slated to have a thorough meeting to review the Pfizer vaccine this Thursday. If the outcome is positive, approval could follow soon after. Likewise, the next “review” meeting of Moderna’s candidate is scheduled for December 17th. Hopes of passing another stimulus grew new legs after a new $908 billion package was proposed by bipartisan Senators on Tuesday. It’s unclear if talks will gain momentum since Senate Majority Leader Mitch McConnell said he was looking for a package closer to $500 billion in total. The November nonfarm payroll data was murky after being released on Friday. The economy added about 245,000 in November which was a steep drop from the 610,000 added in October. The unemployment rate ultimately fell to 6.7%. However, economists are concerned the employment market is reaching a plateau that ironically a new stimulus package can overcome.
|International Equities and Economic Data/News|
On Tuesday, Pfizer and its partner BioNTech applied to the European Union for emergency use authorization of their recently communicated coronavirus vaccine. Then 24 hours later the U.K. granted approval for emergency use, the first nation in the Western hemisphere to receive authorization. Positivity briefly waned on Thursday after its vaccine production was quoted as being subject to supply chain concerns. Many international equities advanced dependent on the region given the positive vaccine news, as emerging markets outpaced developed markets represented by their respective MSCI indices. European equities were mixed based on the region and index but the U.K.’s approval of Pfizer’s new vaccine helped the large-cap FTSE 100 Index spike almost 4% in USD terms for the week. Both Japanese and Chinese stocks fell as China deals with additional local firms that are newly restricted to U.S. investors. The SEC is developing a plan to hopefully move past these restrictions.
The European Commission is set to exclude Hungary and Poland from the proposed €750 billion stimulus package if they continue to block the plan put forth by the other contributing nations. Lawyers have determined ways to make this happen which will surely be a heated debate. Japan’s industrial production rose by 3.8% in October, well ahead of forecasts. The gains were largely driven by increased output in industrial machinery, automotive, and electronics, all of which are encouraging signs as the country grapples with increasing cases of COVID-19. On the contrary, the unemployment rate slightly rose to 3.1% as hospitality sector job losses accelerated. As the U.S. institutes new restrictions on local companies accused of having ties to the Chinese military, foreign investors’ interest in Chinese assets stands pat. Foreign purchases of Chinese government bonds increased in November, but global portfolio managers remain underweight China’s mainland bonds relative to the Bloomberg Barclays Global Aggregate Bond Index. Separately, China reported its manufacturing PMI rose to 52.1 in November from 51.4 in October for the ninth straight monthly increase indicative the economic recovery is in full effect.
The 10-year Treasury yield rose ~ 13bps higher on the week to 0.974% as of Friday afternoon. Rates in general rose after nonfarm payroll data came in below consensus estimates which increased the likelihood that a stimulus will be pushed through Congress. The corporate spread for the iShares iBoxx Investment Grade Corporate Bond ETF, LQD, was approximately -8 bps tighter this week. The ECB decided to extend their pandemic bond buying program, potentially to mid-year 2022. Meanwhile the Federal Reserve bond buying program, the Secondary Market Corporate Credit Facility will expire December 31st, 2020. Municipals outperformed Treasuries on the week tightening ratios to pre-pandemic levels. Light supply combined with fund inflows, $201mm for the week ended 12/2, have continued to provide support to the municipal bond market.
Tuesday, December 8, 2020
•Germany ZEW Economic Sentiment Index
•China Inflation Rate (YoY)
Wednesday, December 9, 2020
•Germany Balance of Trade (October)
Thursday, December 10, 2020
•US Core Inflation Rate YoY (November)
•US Inflation Rate YoY (November)
•US Initial Jobless Claims
Friday, December 11, 2020
•PPI MoM (November)
•US Fed – Quarles Speech
Sources: The WSJ, T. Rowe Price Global Markets Weekly Update, Trading Economics
Data in this report is obtained from sources which we believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. It is provided for your information and guidance and is not intended as specific advice and doesn’t not constitute an offer to sell securities. Consult your financial professional before making any investment decision. Past performance is no guarantee of future results. Diversification/asset allocation does not ensure a profit or guarantee against a loss. The Wilshire 5000 Total Market Index measures the performance of all U.S.-headquartered equity securities with readily available price data. The Standard & Poor’s 500 Index (S&P 500) is an unmanaged group of securities considered to be representative of the stock market. The Russell 2000 Index is a market-cap weighted index comprised of the smallest 2,000 companies within the Russell 3000 Index, a larger market-cap index made up of the largest 3,000 publicly traded companies in the U.S., nearly 98% of the investable U.S. stock market. The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI Europe Index captures large- and mid-cap representation across 15 Developed Markets countries in Europe, covering approximately 85% of the free float-adjusted market capitalization across the European Developed Markets equity universe. The MSCI Emerging Markets (EM) Index captures large- and mid-cap representation across 26 Emerging Markets countries, covering approximately 85% of the free float-adjusted market capitalization in each country. The MSCI Japan Index captures large- and mid-cap representation of the Japanese market, covering approximately 85% of the free float-adjusted market capitalization in Japan. The Bloomberg Barclays U.S. Aggregate Bond Index is a market capitalization-weighted index comprising Treasury securities, Government agency bonds, mortgage backed bonds, corporate bonds, and some foreign bonds traded in the U.S. The Bloomberg Barclays Global Aggregate Ex U.S. Index measures the performance of global investment grade fixed-rate debt markets that excludes USD-denominated securities. The Bloomberg Barclays Municipal Bond Index covers the U.S. dollar-denominated long-term tax-exempt bond market. Created by the Chicago Board Options Exchange (CBOE), the Volatility Index, or VIX, is a real-time market index that represents the market’s expectation of 30-day forward-looking volatility. Data in this newsletter is obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timelines or accuracy of this information. Consult your financial professional before making any investment decision. Past performance is no guarantee of future results. Diversification/asset allocation does not ensure a profit or guarantee against a loss.