Economic Update 11-09-2020
- Economic data for the week included a stronger-than-expected employment situation report, and rising manufacturing and construction activity, yet slightly decelerating results for services.
- U.S. equity markets gained strongly, with the Biden Presidential win and Congressional composition pointing to a status quo policy outcome. Foreign stocks followed, helped by a weaker dollar. Bonds were generally positive as well, with lower long-term interest rates and tighter credit spreads. Commodities also gained due to currency effects, although crude oil prices remain challenged.
U.S. stocks gained sharply last week, experiencing the strongest week since the early post-Covid downdraft in April—as election results became more clear. Every sector ended positively last week, led by growth segments technology and health care, each up over 8%. On the weaker side, energy rose less than a percent, with continued challenges for crude oil prices.
Foreign stocks rose in keeping with U.S. equities, with perhaps a bit of an additional boost from a weaker dollar. Europe fared best, followed by emerging markets. It’s likely not a small presumption that a Biden administration would be perceived to be a bit more ‘globally-friendly’ for regions with whom the U.S. has a strong trading relationship. The Bank of England boosted bond-buying by £150 bil. (to £875 bil.), larger than expected, in a continued effort to combat pandemic lockdown effects. This boosted sentiment, along with stronger European earnings.
The planned IPO of Alibaba founder Jack Ma’s Ant Group on the Hong Kong and Shanghai exchanges (expected to be the largest in history, at just over $35 bil.) was pulled by the Chinese government two days before its scheduled rollout date. Apparently, there were ‘major issues’ in regard to disclosures or listing requirements, but there was little transparency beyond that. This came a week or so after Ma criticized regulators for stifling innovation and the government emphasized a need for private sector leaders to ‘follow the party.’
U.S. bonds ticked up a bit, as interest rate increases on the shorter end were offset by lower rates on the longer end of the yield curve. These were perhaps a response to the mixed government, which implies lesser stimulus, which in itself implies lower inflation risks. (It is interesting how much information and expectations are embedded in a single treasury rate.) Corporate credit spreads also tightened, along with positivity for risk assets, resulting in leadership for investment-grade and high yield corporate bonds both. The U.S. dollar falling by -2% boosted foreign bonds in developed and emerging markets—more so for the latter, where emerging market local debt gained 5% last week.
Commodities generally rose last week, along with most other risk assets and the weaker dollar. Each sector was up roughly a few percent each, led by stronger results for precious metals and including a bit of a recovery in energy. The price of crude oil rose by 4% to just over $37/barrel. This offset a double-digit price decline for natural gas, with weather forecasts for the East Coast expected to be warmer than normal—lowering expected heating demand.
|Period ending 11/6/2020||1 Week (%)||YTD (%)|
|BBgBarc U.S. Aggregate||0.49||6.83|
|U.S. Treasury Yields||3 Mo.||2 Yr.||5 Yr.||10 Yr.||30 Yr.|
Sources: LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.
FOR ADVISOR USE ONLY – NOT FOR DISTRIBUTION TO THE PUBLIC WITHOUT PRIOR APPROVAL FROM YOUR RESPECTIVE FIRM’S COMPLIANCE DEPARTMENT