“The recovery is incomplete…we have a long way to go.”
—Jerome Powell, Chairman of the Federal Reserve, November 17, 2020
“There will likely be some [people] getting vaccinated towards the end of December.”
—Dr. Anthony Fauci, NIAID Director, November 16, 2020
- As of November 19, 2020, there were more than 11.6 million cases and over 251,000 deaths in the United States. Worldwide, there have been more than 56.6 million cases and over 1,355,000 deaths. (Johns Hopkins University)
- As of November 20, 2020, the S&P 500 is +10.11%, year-to-date. The Nasdaq is +32.12% and the Dow Jones Industrial Average is +2.54% since the beginning of the year.
- Joe Biden has been elected the 46th president of the United States, and Kamala Harris is set to become the first female vice president in the history of the country.
- U.S. GDP expanded +33.1% on an annualized basis in the third quarter, beating Bloomberg consensus expectations of +32%, fueled by the continued reopening of businesses and reversing much of the economic fallout stemming from Covid-19-related lockdowns.
- The unemployment rate fell to 6.9% in October from 7.9% in September. However, a broader measure of unemployment known as the U6 suggests the “real” unemployment rate was 12.1% in October, compared to the 6.9% unemployment rate.
- During the week ending November 20, 2020, Pfizer and BioNTech said that their coronavirus vaccine is “safe and 95% effective.” Additionally, Moderna said that their vaccine is “strongly effective” and that it reduced the risk of Covid-19 infection by 94.5%. It also announced a longer shelf life at refrigerated temperatures.
- Initial claims for jobless benefits increased to 742,000 for the week ending November 14. Initial claims have been less than 900,000 since August 29, 2020.
- The seven-day moving average of daily new cases is the highest it has ever been in the U.S. As of November 19, 2020, the seven-day moving average has been increasing and hovering around 150–160,000 new cases per day.
Stocks volatile as NYC schools shut down
|U.S. Stock Market Data
1. Market update
- As of the five days ending November 23, the S&P 500 was -1.36%, the Nasdaq was -0.36%, and the Dow Jones Industrial Average was -1.20%.
- As of November 23, 2020, the S&P 500 is +10.73%, year-to-date. The Nasdaq is +32.41% and the Dow Jones Industrial Average is +3.69% since the beginning of the year.
- According to JPMorgan, the top 10 companies in the S&P 500 Index account for 28.4% of its market cap as of November 19, 2020. The top five companies make up 22% of the Index as of November 19, 2020. (JPM, FactSet)
- The forward P/E ratio is 21.69x as of November 18, 2020. It has not been this high since the dot-com bubble in 2000 and is well above the 25-year average of 16.51x. (JPMorgan Asset Management)
- Year-to-date, growth has been the clear winner as large-cap growth is up +29.1%. On the other hand, large-cap value is down -2.5%. Since the beginning of Q4, however, value is beating growth. Large-cap value is up +10.3% while large-cap growth is +3.8%. (FactSet, JPMorgan Asset Management)
- Small-cap stocks have emerged in Q4 2020. The Russell 2000 Index is up over +14% on the quarter since November 19, 2020. According to LPL Financial, small-cap stocks have room to rise as vaccine progress sparks this new rotation.
- As of November 18, 2020, the corporate bond spread is around 4.42%, which is higher than the usual 4% and much lower than the 21% of the financial crisis. (FRED)
- Gold prices are currently around $1,874 per ounce as of November 18, 2020. This is approximately 9% lower than the non-inflation adjusted all-time high of $2,036 per ounce on August 3, 2020. (Wall Street Journal)
- S&P 500 sector performance as of November 19, 2020:
- Online retail (+60%), Information technology (33%), and Groceries (29%) lead the way year-to-date.
- Energy has been the worst performing sector in 2020 (-39%), followed closely by Airlines and Hotels, Resorts & Cruise Lines (-35% and -33%, respectively). (JPMorgan)
2. Covid-19 summary
Figure 1: Daily New Cases in the U.S.
- The seven-day moving average of daily new cases is the highest it has ever been in the US. As of November 19, 2020, the seven-day moving average has been increasing and hovering around 150,000–160,000 new cases per day. (Johns Hopkins, worldometers.info)
- As of November 19, 2020, there were more than 11.6 million cases and over 251,000 deaths in the United States. Worldwide, there have been more than 56.6 million cases and over 1,355,000 deaths. (Johns Hopkins)
- Vaccine update
- On November 18, 2020, Pfizer and BioNTech said that their coronavirus vaccine is “safe and 95% effective.”
- On November 16, 2020, Moderna said that their vaccine is “strongly effective” and that it reduced the risk of Covid-19 infection by 94.5%. In addition, it announced a longer shelf life at refrigerated temperatures.
- The hope is to have a vaccine in Q1 of 2021.
- As of November 19, 2020, zero states are on track to contain Covid-19; 44 states are experiencing an active or imminent outbreak, and six states are at risk of an outbreak. (Covid Act Now)
Figure 2: States With Outbreaks and at Risk as of November 23
Source: Covid Act Now
- The unemployment rate fell to 6.9% in October from 7.9% in September. However, a broader measure of unemployment known as the U6 suggests the “real” unemployment rate was 12.1% in October, compared to the 6.9% unemployment rate. (FRED, CNBC)
- Initial claims for jobless benefits increased to 742,000 during the week ending November 14. Initial claims have been less than 900,000 since August 29, 2020. (FRED, Cetera Investment Management)
- Some 6,372,000 Americans filed for continued claims for the week ending November 7, 2020. This was the eighth straight week in which continued claims have decreased. (FRED)
4. Election update
- Joe Biden has been elected the 46th president of the United States.
- Kamala Harris is set to become the first female vice president in the history of the U.S.
- Though states finalize and certify their results after every election, the process of confirming the winner of the election has taken on new significance this year, as President Trump continues to contest his loss.
- As of November 19, 2020, it looks like the Democrats will win the House, and the Republicans will win the Senate.
Source: The Guardian
- Without support in both the Senate and the House, the President’s ability to enact key policies (such as major tax law changes) is severely limited. CNN, The Guardian
5. Additional coronavirus relief?
- Congress has so far failed to pass a second relief bill after key parts of the first law, the CARES Act, expired in July.
- While financial pain for the unemployed and small businesses is set to grow as Covid-19 infections surge to records across the country, top leaders from both parties have not met since the presidential election on November 3.
- According to Joe Biden, “we’re going into a very dark winter…things are going to get much tougher before they get easier.” CNBC
6. United States housing update
- U.S. existing home sales increased a fifth straight month, rising +4.3% in October to nearly a 15-year high of 6.85 million annualized. Expect a stimulus bill in January.
- Residential housing starts increased +4.9% to a 1.53 million annualized pace in October, topping estimates for a smaller +3.2% increase to 1.46 million.
- Mortgage applications activity decreased -0.3% last week after lagging -2.6% the prior week.
- Refinance activity fell -2% but was +98% higher than a year ago.
- Purchase-related applications activity rose +4% and is up +26% from this time last year.
- Moreover, homebuilder confidence reached a 35-year high in November. Cetera Investment Management, New York Times
7. Consumers, small businesses confident, but uncertainty looms
- The University of Michigan’s final October reading of consumer sentiment unexpectedly increased to a seven-month high of 81.8 from 81.2 in September.
- The National Federation of Independent Business (NFIB) Small Business Optimism Index held steady at 104.0 in October, matching September’s “post-pandemic” high.
- While the NFIB Small Business Optimism index was unchanged, only four out of 10 components improved, and the Uncertainty Index rose six points. Rising uncertainty reflected the path of Covid-19 and the potential for additional shutdowns. Reuters, Cetera Investment Management
Figure 4: Consumer Confidence
Source: Conference Board
8. What else is going on in the economy right now?
- The United States had a strong bounce-back with Q3 GDP surging at a record-setting +33.1% annualized pace (+7.4% quarter-over-quarter), topping projections for a +32% increase. Consumer spending drove the rebound, up a record +40.7%, surpassing Q1 spending levels. Strong increases in business investment and housing also contributed. The recovery is not yet complete as GDP is 3.5% below its pre-pandemic peak. (CNN)
- Retail sales growth slowed in October, rising just +0.3% after a strong but downwardly revised +1.6% September gain (+1.9% originally reported). While sales are up +5.7% year-over-year, consumers may be growing more cautious about spending amid the viral resurgence and absence of additional fiscal stimulus. (Cetera Investment Management)
- The ECRI tracks initial jobless claims, mortgage applications, and high yield bond spreads among other things, ticking to its highest reading since the pandemic started. The ECRI growth rate is up to 7.4% during the week ending November 6, 2020. (Business Cycle)
- Global PMI for manufacturing was 53.0 and was 52.9 for services in the month of October. (JPMorgan)
- China’s economy reported that its GDP grew by +4.9% in the third quarter of 2020. This brings growth for the first three quarters of 2020 to +0.7% year-over-year. (CNBC)
- Europe is now in the midst of a significant second wave of Covid-19 infections, and local governments have implemented new restrictions, or “lockdown 2.0,” across much of the continent. (LPL Financial)
- New York City shut its entire public school system down on Thursday, November 19 as virus cases rise. In a big setback for the city’s recovery, the nation’s largest district will return to all-remote learning. (New York Times)
9. Looking ahead
- Forecasts: Goldman Sachs, BlackRock, and JPMorgan Chase
- Goldman Sachs raised its S&P 500 price target to 3,700 from 3,600 for the end of the year. They also project the S&P 500 will reach 4,300 by the end of 2021, and 4,600 by the end of 2022.
- Goldman Sachs strategists, led by David Kostin, say that a vaccine is a more important development for the economy and markets than the prospective policies of a Biden presidency.
- BlackRock predicts the S&P 500 will reach 3,800 by 2021, +9% from its current levels.
- Goldman Sachs has a bullish outlook on gold—they expect it to reach $2,300 per ounce, +22% from current levels of $1,890 per ounce.
- JPMorgan predicts a 60/40 portfolio will return +4.2% per year for the next 10 years.
- Emerging markets outlook
- Chad Morganlander of Washington Crossing Advisors believes that Emerging Markets could be a smart play in 2021. He and his team are overweight on EM “for the first time in three years.”
- “The big picture is that 85% of the global population is domiciled in emerging markets with less than 50% of global GDP. [They] see the emerging markets as better relative value as well as growth.”
- “As we go into 2021 in the later half, we think that as Covid-19 passes, global growth will reaccelerate, reemerge, social mobility will reemerge, and you’ll start to see commodity prices go higher. This will all benefit emerging markets,” said Morganlander. Goldman Sachs, CNBC