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Week in Review: December 4, 2020

Recap & Commentary

The S&P 500 again ended the week at a new record high, as investor’s chose to focus on signs that Congress may try to pass additional fiscal stimulus before year end, rather than the ongoing surge in coronavirus cases, which set a new daily record of 227K on Friday.

Interest rates, as measured by the 10-Year Treasury, rose to a four-week high on hopes that additional stimulus might benefit economic activity. Corporate yields, however, moved lower mirroring the improvement in equity markets (remember, yields fall as bond prices rise). Yields on non-investment grade (high yield) corporate bonds fell to a new record low of 4.6%.

Speaking before the Senate, Fed Chair Jay Powell continued to reinforce his message that the economy is faced with unprecedented threats stemming from the coronavirus. He also reiterated the Fed will do all it can to support the economy, but that additional fiscal stimulus would be beneficial. “We’ll use our tools until the danger is well and truly past, and it may require help from other parts of government as well, including Congress.”

Through Saturday, according to Johns Hopkins, the U.S. has recorded 14.6M total coronavirus cases, with nearly 30% occurring in November alone. During the past week, the U.S. set new daily records for cases (227K) as well as deaths (3,157). In the U.K., health officials approved Pfizer’s vaccine for emergency use.  A similar move by U.S. regulators is expected in the near future.

Economic Bullet Points

The week’s economic news was dominated by the November employment report.  At first blush, the report was positive, as headline unemployment fell from 6.9% to 6.7%. However, nonfarm payrolls added just 245K jobs, far fewer than the expected 469k, and just 40% of the 610K added in October. A closer examination of the data revealed that the reduction in the unemployment rate was due entirely to 400K individuals leaving the workforce, as the household survey data used to calculate the unemployment rate actually showed a loss, not a gain, of 74K jobs during the month. Market reaction to the news was positive, as investors chose to interpret it as “bad news is good” with respect to the potential for additional fiscal stimulus.

According to industry group ISM, both the manufacturing and services sectors decelerated some in November. Within manufacturing, production, new orders and employment all slowed from October levels, with the latter slipping back into contraction territory after just a single month of expansion. October’s positive employment reading had been the first for the sector since July 2019.

The service sector slowed to a six-month low as business activity and new orders slowed from October. However, unlike manufacturing, employment increased for a third consecutive month. The collective readings suggest that after a strong initial rebound during the summer months, economic growth is moderating due in part to a normal return to more sustainable levels, but also due to surging coronavirus cases.

Of Note

Denmark announced plans to end all oil and gas production in the North Sea by 2050 in an effort to become carbon-neutral by that time.

Market Indices Week of 12/4

S&P 5001.7%
Small Caps2.0%
Intl. Developed1.0%
Intl. Emerging1.7%
Commodities-0.7%
U.S. Bond Market-0.4%
10-Year Treas. Yield0.97%
US Dollar-1.2%
WTI Oil ($/bl)$46
Gold ($/oz)$1,837

The Week Ahead

  • Small Business Optimism
  • Nonfarm Productivity
  • Consumer Inflation (CPI)
  • Weekly Jobless Claims
  • Producer Inflation (PPI)
  • Consumer Sentiment

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