Conway’s QuickTake: Week of November 30, 2020
U.S. Equities and Economic Data/News
Equity markets raced to fresh highs over a shortened trading week on optimism around development towards a COVID vaccine and increased U.S. presidential election clarity. Many major indexes hit new record highs. The narrowly focused Dow Jones Industrial Average crossed the symbolic 30,000 threshold for the first time ever. This milestone also is representative of the broadening out of the rally beyond just technology and growth-oriented stocks. Reopening enthusiasm boosted more cyclical stocks – providing a needed boost to the energy, financials, and materials sectors. At the same time, more defensive sectors, such as healthcare, consumer staples and, utilities – lagged. Small-caps generally outperformed mid- and large-cap securities. Value also bested growth across most areas of the market.
Positive news around the progress towards potential vaccines continued to flow in. Last week AstraZeneca announced that its vaccine developed in partnership with Oxford University was up to 90% effective. Early Monday morning, Moderna asked health regulators to authorize its vaccine after trials demonstrated it was ~94% effective. President-elect Biden started building out his cabinet for his impending administration after the General Services Administration (GSA) formally started the transition process. Perhaps most relevant for markets, investors welcomed the appointment of former Fed Chair, Janet Yellen as Treasury Secretary based on her prior dovish stance and that she is a known entity. Economic data was less upbeat. Initial jobless claims rose to 778,000 – their highest level in several weeks while personal incomes fell modestly in October. Elsewhere data was more mixed. The University of Michigan’s consumer sentiment index was revised lower and reached its lowest level since August. On the other hand, the residential real estate market maintained its strength and has recently surprised to the upside on several accounts.
International Equities and Economic Data/News
Non-U.S. equities also rallied over the week based on similar optimism surrounding vaccine development, U.S. election clarity, and the hope for extended stimulus efforts from central banks. European stocks realized their fourth consecutive week of gains, helping the MSCI EAFE Index increase by more than 2% in U.S. Dollar terms. Japanese stocks were amongst the strongest performers last week, capping one of the best monthly gains in decades. Chinese stocks rose for the week but lagged developed market counterparts. Positive economic data was partially offset by concern about rising defaults among domestic issuers.
European restrictions kept expanding as Germany and the U.K. both extended or introduced more stringent measures to combat the spread of the coronavirus. Further tightening of the economy has dealt a meaningful blow to the European services sector, although manufacturing continued to expand, albeit at a slower rate. The ECB responded to economic woes with continued dovish messaging. Many expect that this week’s policy meeting will result in additional stimulus, which helped push many Eurozone countries’ bond yields lower. Japanese coronavirus infections reached new highs, with the daily infection rate crossing 2,500 cases. The government is likely to introduce additional restrictions if the rate of new infections fails to slow. The Chinese high yield bond market recently realized an uptick in defaults and downgrades. In particular, some state-owned enterprises (SOEs) have come under pressure after they moved core assets off-balance sheet, limiting options to raise capital to satisfy interest payments.
Vaccine and political clarity pushed yields slightly higher on the week. The U.S. 10-year Treasury yield ended the week at 0.837% versus 0.824% a week prior. Spreads for investment-grade corporate bonds fell, in-line with support for other risk assets. Low levels of issuance also added to technical strength further supporting returns. High yield was among the strongest performing portion of fixed income markets given the heightened appetite for risk assets. High yield spreads are now approaching levels not seen since before the start of the pandemic. The muni market was modestly higher over the week, outperforming Treasuries. Demand continued to be robust for tax-efficient paper which helped push spreads tighter.
Monday, November 30, 2020
Tuesday, December 1, 2020
•US ISM Manufacturing Survey
•Caixin China PMI Composite
Wednesday, December 2, 2020
•Euro area Core CPI
Thursday, December 3, 2020
•US Jobless Claims
Friday, December 4, 2020
•US Nonfarm Payrolls
Sources: The WSJ, T. Rowe Price Global Markets Weekly Update, Goldman Sachs Weekly Market Monitor
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.