Market Update: December 1st 2020
Photo by Kelly Kiernan on Unsplash
In a shortened holiday week, economic data included stronger housing prices but a decline in sales, mixed personal income/spending results, and lower consumer sentiment as Covid cases again pick up.
U.S. and foreign equity markets both experienced gains last week, as positive sentiment continued. Bonds were mixed, with U.S. corporates and foreign debt also gaining. Commodities were mixed, with cyclically-sensitive energy and industrial metals seeing gains, offset by declines in precious metals.
U.S. stocks started the Thanksgiving week strongly, with continued carryover from the prior week’s vaccine news, as well as newly positive news from AstraZeneca surrounding a third possible vaccine. This was in addition to perhaps a boost upon reports that the Presidential transition to Joe Biden is beginning to occur behind the scenes—despite the continued public stance and court challenges to the contrary. The appointment of well-respected and dovish former Fed chair Janet Yellen as the new Secretary of Treasury also seemed to be taken positively, due in addition to perhaps to the removal of Senator Elizabeth Warren from consideration for the post.
By sector, energy stocks gained nearly 10% last week with optimism for 2021 pointing to stronger energy demand. Cyclical financials, industrials, and consumer discretionary stocks also earned several percent; on the other hand, health care was the only sector losing ground, with news of the President considering executive action concerning prescription drug prices. Real estate also declined on the week.
Foreign stocks fared positively, in similar fashion to those in the U.S., with Covid vaccine hopes. Also, the aftermath of the U.S. election, and assumed normalization of many trade and other strategic alliances appears to have benefitted stocks in both Europe and emerging markets. Returns were undifferentiated by region, although the commodity-sensitive nations such as Brazil and Russia fared slightly better than others.
U.S. bonds were little changed last week, although investment-grade and high yield corporates earned several tenths of a percent, in keeping with stronger equity risk sentiment. Foreign bonds were helped by a half-percent drop in the value of the dollar.
Commodities generally gained in the energy and industrial metals sectors, in keeping with a weaker dollar and hopes for improved economic activity, while agriculture and precious metals fell back. The price of crude oil spiked another 7% to around $45.50/barrel, as hopes for demand recovery remained high. Sentiment around upcoming OPEC+ meetings was positive, although the outcome for production was not yet clear.