Conway’s QuickTake: Week of November 16, 2020
|Here’s What Happened Last Week: |
U.S. Equities and Economic Data/News
Positive vaccine news and election results early in the week supported markets. Major indexes briefly touched all-time intraday highs on Monday. Most major indexes realized gains, although growth-oriented sectors substantially lagged as the ‘work from home’ trade reversed. The narrow Dow Jones Industrial Average and smaller-cap stocks were the best performers after an extended period of lagging other respective indexes. Cyclical, value-oriented stocks far outpaced growth and technology names as investors started to price in a more normalized future operating environment. Elsewhere within the S&P 500 Index, the smaller sized real estate sector lost some ground as bond yields rose. Energy shares recovered some lost ground as oil prices rallied around similar future reopening optimism.
Last week started with two major developments. First, Former Vice President Joe Biden crossed the significant 270 electoral vote threshold over the weekend. Second, soon before trading on Monday Pfizer announced encouraging efficacy data on its leading vaccine that was over 90% effective on preventing infections. Early this week, a competing Moderna vaccine also had encouraging early testing. Results so far show that the vaccine is 94.5% effective from a Phase 3 trial with 30,000 participants. Treatment optimism aside, there are increasing signs that the pandemic will get worse before it will get better. The number of cases and hospitalizations rose almost uniformly across the country. Several major cities, such as Chicago and New York, appear on the verge of re-imposing more stringent lockdown measures. Economic data was light last week and remained mixed. Weekly jobless claims fell more than expected and hit a new pandemic low, while consumer sentiment missed expectations and hit a 3-month low.
International Equities and Economic Data/News
European shares also rallied on similar positive potential treatment options for the pandemic. Early week optimism was somewhat mitigated by rising infection rates and new lockdown measures. Japanese stocks posted impressive back-to-back weekly gains helping the TOPIX fall solidly into positive territory for the year, in U.S. dollar terms. Emerging market equities were positive but realized more muted gains relative to developed non-U.S. market counterparts. Chinese stocks were left out of the rally as trade dispute concerns overshadowed positive earnings and vaccine optimism
Cases are also on the rise throughout much of Europe, although many Asian nations continue to fare better. Several key European countries, such as France and Germany, are or are in the process of extending lockdowns as the pace of infections has failed to slow. The ECB maintained a dovish and supportive stance in the light of increasing infections. ECB President, Christine Lagarde, signaled that the bank would extend pandemic asset support measures through year-end. The central bank also continues to reiterate that all options are on the table to continue supporting the economy throughout this crisis. Many Japanese companies have revised earnings forecasts higher during the recent reporting season. Positive revisions were largely a result of increased work-from-home demand and China’s better than expected recovery. That said, companies most directly impacted by the pandemic continue to report amongst their worst years ever.
The start of the week saw U.S. Treasury prices down as yields climbed, and stocks remained volatile on election and vaccine news. The yield on the U.S. 10-year Treasury is currently around 0.885%, the middle of the weekly range, which saw a high of 0.975% on Monday. Corporate spreads were tighter at the beginning of the week but faded and widened out as COVID cases spiked and new restrictions were imposed. Investment grade issuance was light last week, however, there was a flurry of new deals in the last three trading sessions of this week. Municipals were slightly lower although the asset class modestly outperformed Treasuries. Fund funds reversed prior week outflows adding $1.2 billion. With muted muni supply expected into year end, current supply/demand dynamics are supportive. 30-day visible supply of $15.9 billion vs $22.4 billion in redemptions.
Looking ahead…Tuesday, November 17, 2020
•US Industrial Production
Wednesday, November 18, 2020
•UK Consumer Price Index
Thursday, November 19, 2020
•US Jobless Claims
•Philadelphia Fed Survey results
•Japan Core Consumer Price Index
Sources: The WSJ, T. Rowe Price Global Markets Weekly Update, Piton Investment Management
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