The Pulse – What’s happening in the Economy and the Capital Markets: 11/30/20 – 12/4/20

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The Pulse – What’s happening in the Economy and the Capital Markets: 11/30/20 – 12/4/20

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Executive Summary


Post-Thanksgiving week data was telling, enforcing the emerging trend of a split between the economy and stock market.

The capital markets experienced another strong week with further news on timing of a COVID-19 vaccine and its results on the future of the global economy. Yet, high frequency data on the consumer reversed and consumer expectations for the future are declining.

The labor market is showing mixed signals with November’s job additions coming in well below consensus alongside fewer than expected initial unemployment claims.

The Markets


November was one of the strongest months for the markets in decades thanks to two sizable uncertainties largely resolving – the U.S. presidential election and the timing of a COVID-19 vaccine. The momentum continued into December with investors excited about further COVID-19 vaccine approvals expected by the end of December. Investors are also encouraged by the softening recovery and renewed expectations of a U.S. stimulus bill.

The Pulse 12.7.2020 1

The rally remains broad-based as small cap U.S. and Emerging Market stocks continue to lead. Oil and other commodity prices are rebounding in anticipation of future demand.

For the week, the top performing sector was Energy, which increased nearly 5%. Industrials and Financials also continue their cyclically driven momentum.

Further focus on cyclical recovery is exhibited in the high yield bond markets.

  • The spread from high-yield bonds to treasury bonds continues to narrow and both are now below their historical averages.
  • Similarly, the market is witnessing some of the largest bond deals between lenders of private loans and companies – a sign of optimism.

The Economic News

The economic data is pointing to a clear slowdown of the economic recovery, with certain sectors healthier than others.

Anything related to online shopping is very strong following downright astonishing Black Friday results.

Labor news was mixed:

On the positive side, while still elevated, the Initial Jobless Claims and Continuing Claims beat expectations.

  • Initial Claims were below expectations and declined after rising the prior week.
  • Continuing Claims were much better than expected and dropped 500,000 people from last week.

The federal government’s monthly Jobs report for November disappointed.

  • Nonfarm payrolls increased 245k, down >60% from October and ~50% of expectations.
  • Private (i.e. ex-government hiring) payrolls increased 345k, down >60% from October.
  • Unemployment rate dropped to 6.7% from 6.9%, in line with expectations.
  • Underemployment was at 12.0%, still well above pre-COVID-19 levels.

The high frequency data indicates a weakening consumer.

Data Frequency chart for the pulse

There’s significantly more red across the tracked data than in previous weeks. While the Consumer is flashing red, steel production is flat month-over-month and down week-over-week after a significant period of growth.

  • This is the first time in 24 weeks that steel production hasn’t increased month-over-month.

We have lost four months’ worth of restaurant dining gains which declined by ~1/3rd in November.

The Pulse chart 12.7.2020 3

Source: OpenTable.com, reflects 7-day average

Focus of the Week – the Consumer

Consumer Confidence and Expectations declined in November which we saw play out in the high frequency data.

ConcusmerConfidence-12720

The Consumer Confidence survey asks Consumers how they feel about their current situation and what their expectations are.

  • Consumer Confidence (shaded with black outline) declined 6% in November.
  • Consumer Expectations (red dashed line) plummeted 11% in November.

While online retail sales are expected to be very strong during the holiday season, other components of consumer spending, notably around experiences such as restaurants and travel and in-store retail, will likely decline materially (relative to pre-COVID-19 trends).

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To discuss these ideas and how they may affect your current investment strategy schedule a consultation with Simeon Wallis.

Disclosures

Investment advisory services are offered by Aprio Wealth Management, LLC, a Securities and Exchange Commission Registered Investment Advisor.  Opinions expressed are as of the current date (December 7, 2020) and subject to change without notice. Aprio Wealth Management, LLC shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, the information, data, analyses or opinions contained herein or their use, which do not constitute investment advice, are provided as of the date written, are provided solely for informational purposes and therefore are not an offer to buy or sell a security. This commentary is for informational purposes only and has not been tailored to suit any individual. References to specific securities or investment options should not be considered an offer to purchase or sell that specific investment.

This commentary contains certain forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially and/or substantially from any future results, performance or achievements expressed or implied by those projected in the forward-looking statements for any reason.

No graph, chart, or formula in this presentation can be used in and of itself to determine which securities to buy or sell, when to buy or sell securities, whether to invest using this investment strategy, or whether to engage Aprio Wealth Management, LLC’s investment advisory services.

Investments in securities are subject to investment risk, including possible loss of principal. Prices of securities may fluctuate from time to time and may even become valueless. Any securities mentioned in this commentary are not FDIC-insured, may lose value, and are not guaranteed by a bank or other financial institution. Before making any investment decision, investors should read and consider all the relevant investment product information. Investors should seriously consider if the investment is suitable for them by referencing their own financial position, investment objectives, and risk profile before making any investment decision. There can be no assurance that any financial strategy will be successful.

Securities offered through Purshe Kaplan Sterling Investments. Member FINRA/SIPC. Investment Advisory Services offered through Aprio Wealth Management, LLC, a registered investment advisor. Aprio Wealth Management, LLC and the Aprio Group of Companies.

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