Weekly Snapshot December 07, 2020
Market Review: Week Ending 12/4/2020
In the current environment of TINA for stocks (There Is No Alternative), good news is good for stocks while bad news is also good for stocks. Last week, despite the staggering number of new Covid-19 cases and record levels of hospitalizations, along with the monthly jobs report that shows a clear sign of slowdown from the restrictions needed to slow the spread of the virus, four major U.S. stock market indices, the S&P 500, Nasdaq, the Russell 2000, and the Dow closed at all-time highs.1 The S&P 500 Index rose 1.7% to close at 3699, while the small-cap Russell 200 Index rose 2.0%, as economically sensitive small-cap stocks continued the surge that began with the news of the positive vaccine trials in November.2 Bad news was considered good news in that the clear sign of economic slowdown increases the odds of a fifth Covid-19 fiscal relief bill, as Congress now appears closer to agreeing on what is rumoured to be $900B in additional stimulus before the Christmas holiday. Even November’s particularly disappointing Nonfarm Payrolls report wasn’t enough to puncture investor optimism. Employers added just 245k workers in November, below expectations for 440k and October’s additions of 610k.3 The unemployment rate did fall from 6.9% to 6.7%, but only because more than 400k people left the labor force.3 News from Pfizer that logistical challenges will limit the distribution of their vaccine to only half of the 100m produced before year-end, also couldn’t derail investor optimism as that near-term disappointment is dwarfed by expectations of upwards of 1B doses distributed in 2021 from the Pfizer vaccine alone.2 Money continues to flood in equites, as BofA’s latest report noted global equities saw inflows of $9.7B in the week-ended Dec 2nd and have attracted a record $115B in just the last four weeks.3 Money could be leaving safe-haven Treasuries as the 10-year US Treasury Yield continues to creep higher, sitting at 0.97% on Friday, up 12bps last week alone.2 Signs of investor confidence are abundant and worrisome, and some measures have now reached levels where future gains are less likely, though December is a seasonally strong month historically for stocks. In this TINA environment for stocks, we are reminded that Chairman Greenspan’s famous warning of “irrational exuberance” was issued in 1996, some four years before the piercing of the dot.com bubble in the spring of 2000.
WHAT WE WILL BE WATCHING THIS WEEK
- CPI Report – Much of the stock market’s performance in 2020 can be credited to ultra-easy monetary policy by the Federal Reserve. Money supply is up an unprecedented 24% y/y and along with fiscal measures, resulting in stimulus that represents nearly 50% of the U.S. economy.3 Record-low levels of interest rates have forced investors into stocks, and boosted the valuation of all long-duration assets, including stocks. Though signs are growing that inflation pressures may be building (hourly wages are up 4.4% y/y despite nearly 10m still being unemployed since February and 66% of respondents now say they can raise prices in last week’s ISM Services Index), inflation has been modest for many years.3 While Thursday’s report is not expected to show inflation is returning anytime soon, with expectations for November in the 1.2-1.4% range, should inflation pressures surprise investors, the impact on equities could be felt.3
As always, we appreciate your confidence in our team.
Fundamentum Investment Committee
Paul Danes, CFA® – Investment Committee
Trevor Forbes – Investment Committee
Robert Armagno – Investment Committee
Matt Dunn, CFA® – OSJ Supervisor
- Wall Street Journal, 12/4/20
- FactSet, 12/4/20
- Barron’s 12/4/20
Investment advice offered through Fundamentum LLC a registered investment advisor. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. There is no assurance that the investment objective of any investment strategy will be attained. Investing involves risk including loss of principal. Past performance is no guarantee of future performance. All indices are unmanaged and may not be invested into directly.