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Market Commentary for the week ending October 23rd, 2020
- Many of the year's poorer performing markets and stocks posted the best gains of the week.
- Bond prices continued their decline from early August highs resulting in higher yields.
- Booming home sales and improving jobless claims suggests a strengthening economy.
The Transportation Security Administration, or TSA, screened an average of 855,819 passengers per day in the most recent with one single day topping 1 million for the first time since mid-March. As the accompanying graph shows, travelers continue to return to the skies but counts remain about two-thirds below the same period a year ago.
The market value of Peloton (PTON), the manufacturer of the very popular stationary bike, is $35.7 billion up nearly 400% from its initial public offering just 13 months ago and now exceeds that of Ford Motor Company as shown in the accompanying graph. Peloton has certainly benefitted from the pandemic with sales surging +172% in the most recent quarter to $607.1 million and generating its first quarterly profit of $89.1 million. This compares to sales at Ford dropping by roughly 50% in the June quarter to $19.4 billion with income of $1.1 billion. It’s certainly a new world with new market leaders!
This Week’s Performance Highlights
As markets gyrated, investors showed a renewed appetite for risk for the second week out of the past three. Examples of this behavior were smaller stocks moving higher while larger stocks declined, riskier emerging markets outperforming developed markets, and high yield corporate bonds gaining while the safest government bonds fell. The big question facing every investor is whether or not this reversal in fortunes will continue or if the year’s best performing markets and sectors will continue their leadership role.
- U.S. large stocks, as measured by the S&P 500,closed down -0.4% but hang onto a still impressive +9.0% year-to-date gain. The Dow Jones Industrials and the tech-heavy NASDAQ lagged behind falling -1.0% and -1.1% respectively.
- Small U.S. stocks notched a gain of +0.4% but remain lower for the year by -0.5%.
- The worst performing sector for the week, yet the best performer for the year, was technology stocks dropping -2.2% but still up a whopping +30.5 in 2020. Some individual stocks’ performance is highlighted in the below table.
- While tech stocks moved lower, two of the three best performing sectors for the week, energy and financials, are the two worst performers for the year all serving as another example of investors’ interest in adding risk to their portfolios.
Some of the best performing individual stocks for the week have also been some of the worst 2020 performers including airlines, cruise lines, and casinos as illustrated in the accompanying table.
International stocks were higher across the board with developed country markets gaining +0.4%. The best performer in the Eurozone was Spain with a gain of +1.9%. This is yet another example of investors bottom fishing, or buying the most down-and-out markets, as Spain has the worst year-to-date performance of all the Eurozone markets as illustrated in the below graph. Actually, every market that is down for the year gained in the most recent week while all of the year’s winners posted a weekly loss.
- Emerging markets exhibited much of the same behavior posting an overall gain of +1.7% with two of the year’s worst performing markets, South Africa and Russia, registering the biggest weekly gains.
- China's market was also a winner this week up +2.3% as investors reacted to a report that their economy grew by +4.9% in the third quarter compared to the same period last year. Although economic data from China is not always believed to be reliable, there seems to be consensus that the Chinese economy is rebounding from COVID-19 rather well.
- Real estate stocks, some of the worst performers in 2020, gained +0.7% in the most recent week helping the performance of well-diversified portfolios. Gold inched higher by +0.2% while commodities slipped -0.9%.
- Bond prices have been drifting lower since early August with the trend continuing this week down -0.4%. The performance by type was relatively wide with riskier high yield bonds actually rising +0.3% while 10-Year U.S. Treasuries, consider among the safest investments on the planet, dropped -0.7%. Year-to-date U.S. Treasuries maintain a commanding performance lead up +10.2% compared to high yield bonds up just +0.3% for the year.
Housing Starts improved in September rising to an annualized rate of 1.415 million. Although this is up +1.9% from the prior month and up +11% compared to the same period a year ago, it was well below economists estimates of 1.450 million. As the accompanying graph illustrates, starts were trending in a relatively tight range through mid-’19 when the broke trough to the upside. They then collapsed at the onset of the pandemic and have since recovered but remain below pre-pandemic levels.
In a separate report on housing, existing home sales continue to boom coming in at an annualized rate of 6.54 million up +9.4% from the month before and up +21% compared to the same period last year. Contrary to common seasonality trends when sales tend to drop off later in the year, this year’s rise is being fueled by record low interest rates and buyers of vacation homes given greater flexibility to work remotely. There may be a ceiling on future growth as the inventory of homes for sale has fallen to a record low of 2.7 months and prices have surged +15% compared to a year ago.
Jobless claims had a sharp drop in the most recent week with 787,000 new claims compared to 842,000 the week before. Not only was this a nice week-over-week drop but it was also well below economists expectations of 860,000. Continuing claims, or the total number of unemployed collecting benefits via state programs, also fell sharply but it is unclear how many found jobs or simply are no longer eligible for benefits. It’s important to note that there are many questions about this data and whether or not it is providing an accurate reflection of the employment market but it is all generally seen as a positive.
Upcoming Economic Reports
- Gross Domestic Product
- Durable Goods Orders
- Jobless Claims
- Case-Shiller Home Price Index
- Consumer Confidence Index
- Consumer Spending