US and International Equities
After a strong November for the markets due to positive vaccine news, a strong third quarter earnings season, along with prospects for a split Congress, the major market indexes along with the small cap Russell 2000 index finished the first week of December higher. Continued optimism regarding vaccines and improving prospects for fiscal stimulus helped offset concerns over rising COVID-19 cases and a soft November jobs report.
“November gave us a lot of positive vaccine news, which should start helping the job market over the next few months,” explained LPL Financial Chief Market Strategist Ryan Detrick. "In the meantime, we need to limit the number of people who get left behind against the backdrop of a stalling recovery.”
Energy carried November strength into this week as the top-performing sector, but remains down slightly over 30% year-to-date. Thursday’s OPEC meeting, where members agreed to gradual production increases, was well received by market participants.
Technology and internet-heavy areas, notably communication services and information technology, led the markets higher along with healthcare. The “stay at home” names along with firms associated with COVID-19 treatments and vaccines had a positive week. In addition, financials had a positive showing this week. On the flip side, the utilities, materials and consumer discretionary sectors finished the week lower, with utilities trailing the S&P 500 year to date.
International markets finished the week higher. Emerging markets (MSCI EM Index) outperformed their developed international counterparts, as denoted by the MSCI EAFE, by less than a half of a percent.
Stock valuations outside of the United States—particularly in emerging markets—still look very attractive despite recent outperformance. On a forward price-to-earnings basis, international developed market equities, based on the MSCI EAFE, are trading at a nearly 20% discount to the S&P 500 Index (20-year average is 8%). Emerging market equities, based on the MSCI EM Index, are trading at a 31% discount to the S&P 500 (20-year average is 28%).
Fixed Income, Currencies, and Commodities
Bonds, as represented by the Bloomberg Barclays US Aggregate, finished fractionally lower for the week. The 10-year Treasury note traded lower as well as yields rose. Most bond sectors were higher this week.
Commodities finished mostly higher this week. Oil ended the week higher, continuing its streak of four consecutive weeks of gains. Natural gas sold off to end the week lower, but is still up over 15% year to date. Gold, silver, and copper all had a positive week.
The ICE U.S. Dollar Index, which is a yardstick of the dollar versus a basket of six currencies, dropped this week to its lowest level since April 2018 as illustrated by the chart below. The decline is mainly due to strength in the euro.
US and International Economic Data Recap
The latest edition of the Federal Reserve’s (Fed) Beige Book observed most regional districts saw modest to moderate economic expansion since October, but four described little or no growth. Moreover, five districts reported some activity that remained below pre-pandemic levels. The manufacturing, distribution/logistics, as well as homebuilding sectors were among the strongest areas while some banks reported concerns with their commercial loan portfolios. This was particularly true in relation to loans in the retail and leisure/hospitality industries.
The Beige Book observed a positive but slow improvement in employment. In addition, not surprisingly, labor challenges from COVID-19 related closures of production facilities and schools were mentioned. Childcare and virtual schooling are seen as large and growing problems. Optimism remains, especially given vaccine progress and the potential for more stimulus, but economic momentum has been waning ahead of year-end expirations of federal unemployment benefits and eviction/foreclosure moratoriums.
Initial jobless claims fell to 712,000, well below Bloomberg consensus forecasts of 775,000, and lower than the prior week’s 778,000 (source: US Department of Labor). Continuing claims also fell, declining to just over 5.5 million and below the Bloomberg consensus estimate of 5.8 million. The drop in claims from the prior week is the largest since the first week of October, but claims may rebound next week due to holiday distortions.
In addition, the US economy added over 240,000 jobs in November according to the US Bureau of Labor Statistics, missing Bloomberg survey estimates of 460,000 as COVID-19 cases rose sharply. The unemployment rate also declined, falling slightly to 6.7%. We took a closer look at the state of the US labor market here.
Next week, the following economic data is slated to be released:
- On Monday, we get data on October’s Consumer Credit.
- Tuesday we have November’s National Federation of Independent Business’s (NFIB) Small Business Index reading and 2020 Q3 unit labor cost and productivity metrics.
- Wednesday is all about the US Bureau of Labor’s Job Openings and Labor Turnover Survey (JOLTS) October Job Openings, along with October’s wholesale inventories.
- On Thursday, we get data on November’s Consumer Price Index, Treasury Budget, along with last month’s hourly earnings and workweek data. In addition, Thursday provides investors another weekly initial unemployment claims report.
- Finally, Friday brings November’s Producer Price Index and the Michigan Sentiment.
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