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Market Commentary for the week ending October 9th, 2020
- Stocks have their best week in months with every sector participating in the gains all helped by hopes of more economic stimulus.
- The U.S. trade deficit with the rest of the world reached near record highs.
- Earnings season is set to kick off in the coming week with numbers expected below year ago levels.
Aerion Corp., a manufacturer of supersonic jets, has a long-term vision to build jets that will travel at more than 4 times the speed of sound or about 3,000 miles per hour. Accomplishing this could be in the distant future but they are making progress with plans to deliver a business jet in 2027 that will top 1,000 miles per hour.
Third quarter earnings season gets kicked off in the coming week with the average S&P 500 company expected to report results off -20% compared to the same period a year ago. This is an improvement from earlier expectations but still very rough. In spite of this expected earnings decline, the S&P 500 is up +21.4% during the last 12 months.
This Week’s Performance Highlights
It was a bit of a flight from safety for investors with, what are considered the safest asset in world, U.S. 10-Year Treasuries, down while riskier stocks such as small-cap and international emerging posted the biggest gains.As I highlight below, there were many other indications of this appetite for risk. Helping the markets was hope that the White House and Congress could possibly come together on another stimulus bill with President Trump signaling Tuesday talks were off but then quickly changed course.
Large U.S. stocks gained +3.9% as measured by the S&P 500 in what has been one of the broadest weekly rallies with more than 90% of the stocks posting gains. This is sometimes seen as a sign of a healthy market when more stocks are participate as compared to just a few big stocks enjoying gains.
- The NASDAQ outperformed, up +4.6%, helped a possible $30 billion buyout of chipmaker Xilinx (XLNX) that pushed its stock up +17.9% for the week. The Dow rallied too but lagged behind the other indexes up +3.3% and moved back into positive territory for the year by a fraction of a percent.
- Along with nearly every stock in the S&P 500 gaining for the week, every sector did as well. Although technology stocks have been the winners in 2020 and had another good week, the energy sector, the worst performing sector for the year, topped the winners list this up +5.1% in another sign of investors embracing riskier stocks.
- Small U.S. stocks were the big winners this week jumping +6.4%. During the last 2 weeks, small stocks have been large by a huge margin of +5.8% but are still trailing year-to-date with small stocks still fractionally lower and large are up +9.4%.
- International stocks rallied as well with markets in nearly every country higher. Developed markets gained +2.8% but it was uneven from one region to the next with the worst year-to-date performing region, Australia, up the gaining +4.9% while the year’s best performing region, Japan, lagged with a gain of +1.1%. Again, a sign of investors chasing the riskier markets.
- Emerging markets jumped +4.2% but, again, the gains were meaningfully different from country to country. The two best performers for the week, Mexico and Brazil up +7.7% and +6.6% respectively, have experienced the biggest losses for the year.
- Commodity prices surged +6.4% as the price of oil spiked more than $3 per barrel to close at $40.52. Gold added to its big 2020 gain up another +1.4% for the week and now +26.7% for the year. Its rather lackluster performance, although still higher, is consistent with investor behavior this week shunning what are generally perceived as safe-havens.
Real estate stocks, generally considered one of the more riskier asset classes since the onset of the pandemic, were the anomaly this week. Investors continued to shy away from these riskier stocks with them gaining just a fraction of what other asset classes did up only +1.1%. They remain lower in 2020 by -16.8% with some of the biggest individual losers down -40%+ for the year as highlighted below.
- Bonds were the only major asset class down for the week with prices off -0.2%.
Economic data was limited this week and the little that was reported was not very encouraging. Topping the list of disappointments was the Initial Jobless Claims report, counting the number of Americans filing new claims for unemployment benefits, showing our country’s employment market facing continued pressure.
In the most recent week 837,000 people filed a new claim which was an improvement from the prior week’s 873,000. Florida, Illinois, and Virginia reported the biggest increases while New Jersey and Pennsylvania registered declines. The most recent data available on continuing claims, including both state and federal programs, increased to 26.53 million from 26.04 million the week before.
The Trade Deficit jumped almost +6.0% in August reaching the third highest level on record at $67.1 billion. As the accompanying graph shows, this deficit had fallen to a multi-year low in February but has since surged during the pandemic. This surge has been the result of imports recovering quickly down just -3% compared to pre-pandemic levels while exports are still off -18%. This is a reflection of the U.S. economy recovering more quickly and, therefore, an increasing demand for imports, while other countries’ economies are recovering more slowly.
Upcoming Economic Reports
- Consumer Price Index
- Producer Price Index
- Retail Sales
- Jobless Claims
- Industrial Production