Market Week: November 16, 2020

The Markets (as of market close November 13, 2020)

Stocks soared to record highs last Monday following an announcement from a major pharmaceutical company of positive data on a COVID-19 vaccine. That news, coupled with President-elect Joe Biden's win, helped buoy investor optimism. Cyclicals and bio-tech stocks led a powerful rally, which drove the Dow up 3.0%. The S&P 500 added 1.2%, the Russell 2000 climbed a robust 3.7%, and the Global Dow shot up 4.2%. The Nasdaq lost value as money moved from tech stocks to value shares. Energy shares jumped more than 14%, while financials advanced more than 8.0%. Crude oil prices, the dollar, and Treasury yields all rose.

Market returns were mixed last Tuesday with the Nasdaq and the S&P 500 losing value, while the Dow, the Russell 2000, and the Global Dow continued to surge. Bond prices fell, sending Treasury yields higher. Crude oil prices and the dollar each rose for the second consecutive day. Weakness in mega-caps and tech stocks offset strength in cyclicals and value stocks. Among the market sectors, utilities, industrials, energy, and consumer staples pushed higher.

By the end of trading last Wednesday, the Nasdaq posted a gain for the first time in the last three sessions. The tech-heavy index climbed 2.0%, followed by the S&P 500 (0.8%), and the Global Dow (0.2%). The Dow and the Russell 2000 moved little. Crude oil prices and the dollar rose, while Treasury yields fell. Technology led the sectors, followed by consumer discretionary. Energy, industrials, and financials fell.

Surging COVID-19 cases prompted a sell-off last Thursday as each of the benchmark indexes listed here lost value. Treasury yields plunged and crude oil prices sank, while the dollar rose. All of the market sectors lost value, with energy and materials tumbling the most. Along with news of advancing virus cases, investors were hit with the prospects of tighter pandemic-related restrictions, continued wrangling over fiscal stimulus, and worsening relations between the United States and China.

Melissa MinterNovember 18, 2020

Overview

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The year began with the government stymied by a shutdown, and ended with articles of impeachment levied against the president. In between, both domestic and global economies showed signs of slowing, all while the trade war between the United States and China loomed throughout the year. Nevertheless, investors remained relatively bullish toward stocks, pushing several major indexes to record highs.

While domestic economic growth may have slowed in 2019 compared to 2018, it showed resilience and stamina. The third-quarter gross domestic product expanded at an annualized rate of 2.1% — moderately down from 2018's 3.0% rate, yet still strong enough to outpace global economic growth by a considerable margin. Consumer spending — which accounts for about two-thirds of the U.S. economy — surged, buoyed by a strong labor market, near-record unemployment, solid wage growth, and a burgeoning stock market. All told, the domestic economic expansion continued into its 11th straight year, the longest run in U.S. history.

Last year saw trade disputes between the United States and several of its trade partners reach an accord, but the trade war with China roared. The world's two largest economies engaged in a tit-for-tat skirmish, with each country volleying tariffs on their respective imports at the expense of the exporting nation. Coincidentally, a limited deal was announced just before the holiday shopping season, with the U.S. agreeing to forgo new tariffs and China assenting to allow more U.S. agricultural imports. Further negotiations are presumed, but the relationship between the economic giants remains tenuous at best.

Not only did the ongoing trade war affect global economies, but it also impacted domestic business investment, industrial production, and exports. Part of the justification cited by the Federal Reserve for lowering interest rates three times last year was weakness in business fixed investment and exports. As of November, new orders for durable goods were down 1.3% from the same period in 2018, and business (nonresidential) investment fell 2.3% in the third quarter.

The new year begins with a strong stock market and solid economic growth. The Secure Act, passed in late December, should change the retirement planning (and saving) landscape to some extent. However, the Treasury budget deficit for fiscal 2019 (October 2018-September 2019) exceeded $980 billion — 26% higher than the 2018 fiscal-year deficit. The trade war with China may cool with more mutual concessions, or accelerate, which would continue to dampen global economic growth. The new year will begin with the impeachment process and end with November's presidential election. What happens in between is anyone's guess. Will unemployment and inflation remain low? Will stocks continue to experience growth? Will oil and gas prices moderate or surge? Will the domestic economy continue to accelerate, or suffer a setback? Can the world economy recover, or will it continue to stagnate? If nothing else, 2020 looks to be an interesting year.

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Market Week: November 16, 2020

Overview

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