Market Update: December 14th, 2020

Photo by Kyler Nixon on Unsplash

In a lighter week for economic data, releases included minor increases in producer and consumer prices, and higher-than-expected jobless claims as an uptick in Covid cases continues to weigh on the jobs market. Consumer sentiment improved with the Covid vaccine news, along with inflation expectations falling a bit.

Global stocks declined last week, as higher Covid case counts, lack of economic stimulus from the U.S. Congress, and upcoming deadline for Brexit weighed on investor sentiment. Bonds, on the other hand, fared well as interest rates retreated downward. Commodities gained across the board in keeping with a renewed trend of optimism for higher eventual post-pandemic demand in energy and metals.

U.S. stocks fell back last week, as rising virus counts and a lack of progress in Congress about another stimulus package weighed on sentiment. In keeping with the broader market trends, energy was the sole winner last week, helped by higher oil prices and continued hopes for stronger economic demand next year. On the downside, financials and technology suffered the worst declines. Real estate also lagged, falling nearly -3%, but led by more severe declines in malls and lodging REITs. Small cap stocks also earned positive returns, again beating large caps.

Foreign stocks declined along with U.S. stocks last week, not helped by a stronger dollar. While Japan and the emerging markets only declined slightly, U.K. and European stocks fell further. Sentiment soured by the end of the week with rising virus counts, lockdowns, and as a year-end deadline for Brexit looms—with no agreement in sight. It appears at this point, absent a major breakthrough, that the U.K. and European Union could be dealing with each other through standard/default World Trade Organization rules, similar to how several other commonwealth nations (such as Australia) trade with Europe. While not the end of the world, several regional-specific issues remain unresolved, such as fishing rights around shared border areas. Emerging market results were led by commodity producers, such as Brazil and Russia, while those seen as being helped most by an upcoming vaccine, such as India, also fared well.

U.S. bonds fared well last week, with equities selling off mildly, as virus cases remain high and economic data showed signs of flattening. Treasuries fared best, although investment-grade corporates also fared positively. Foreign bonds in developed markets gained ground, with falling rates on the order of 0.10-0.20% outweighing the impact of a stronger dollar. The upcoming FOMC meeting this coming week is expected to result in little change in policy, but perhaps more veiled calls for additional fiscal stimulus.

Commodities earned positive returns across the board last week of over a percent on net, led by agriculture and energy, with industrial and precious metals earning lesser gains. The price of crude oil rose minimally to around $46.50/barrel, while Brent crude rose above $50—triggering positive sentiment around that round number again being reached. As has been the case over the last few weeks/months, positive news about the economy or vaccine distribution has been bullish for energy and industrial metals, especially, with setbacks affecting the group negatively. Precious metals remain the year-to-date leader (up 20%), but investors have rotated away from the group in recent months as risk has been embraced.