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Week in Review: November 13, 2020

Recap & Commentary

US equity markets rallied last week as investors were encouraged by positive vaccine news from Pfizer despite coronavirus figures continuing to surge across the country. The S&P 500, tracking large cap stocks, and the Russell 2000, tracking small cap stocks, both hit all-time highs, while the Dow Jones Industrial Average exceeded pre-pandemic levels. Reignited hope for an effective vaccine prompted investors to sell out of high-flying tech and growth stocks in favor of small caps and cyclicals, driving the largest one-day rotation into value stocks since the Financial Crisis. The 10-year Treasury yield also hit mid-March highs as investors bet big on equities.

As of Saturday, the CDC had reported nearly 245k coronavirus-related deaths in the United States. The US reported a new record of 184k daily infections Friday, eclipsing previous records set over the week. Hospitalizations also hit record highs four days in a row and the country’s daily death toll exceeded 1,300 three times this week. Pfizer reported a 90% efficacy rate of its Phase 3 vaccine candidate as state governors continue to add more restrictions to curb the spread of the virus heading into the holiday season.

Through Friday, 92% of S&P 500 companies had reported third quarter earnings, with 84% beating their consensus estimate. Currently, third quarter earnings are expected to contract 7.1%.

Economic Bullet Points

A relatively quite week for economic data was highlighted by inflation data which remains benign. At the headline level, consumer inflation (CPI), was unchanged in October, and up just 1.2% from the prior year. Core CPI, which excludes more volatile food and energy prices, was also flat for the month, and up just 1.6% from a year ago. At current levels, the risk of disinflation remains a bigger concern than inflation. Readings on business inflation (PPI) corroborated the current lack of inflation in the broader economy.

Consumer sentiment dipped in the first half of November, rather than posting a slight increase, as expected. Consumers’ views on current conditions and future expectations both fell. Surging coronavirus cases and uncertainty surrounding the Presidential election were cited as factors.

Weekly jobless claims improved from the prior week, falling from 757k to 709K.  Continuing claims also improved, falling from 7.22M to 6.79M. With new coronavirus cases now well above 100K/day, there is growing concern that economic activity will suffer as states impose new restrictions to stop the spread.

Outside of the U.S., 10 Southeast Asian countries, along with South Korea, China, Japan, Australia, and New Zealand signed the Regional Comprehensive Economic Partnership (RCEP).  Collectively, the 15 countries account for nearly a third of the global economy.  The deal creates a new free-trade bloc larger than either the U.S., Mexico, Canada Agreement, or the European Union.

Of Note

Early Monday, Moderna announced that its vaccine candidate is 94.5% effective. The biotech company will use that data to apply for Emergency Use Authorization of the vaccine in the coming weeks.

Market Indices Week of 11/13

S&P 5002.2%
Small Caps6.1%
Intl. Developed3.9%
Intl. Emerging1.0%
Commodities1.2%
U.S. Bond Market-0.1%
10-Year Treas. Yield0.89%
US Dollar0.4%
WTI Oil ($/bl)$40
Gold ($/oz)$1,888

The Week Ahead

  • Empire State Mfg. Index
  • Philly Fed Mfg. Index
  • Industrial Production
  • Import/Export Prices
  • Housing Starts
  • Existing Home Sales
  • Retail Sales
  • Weekly Jobless Claims

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