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Patton Wealth Management, Inc.- Market Commentary for the week ending December 4th, 2020

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04 December, 2020 Market Commentary

Small Stocks Post Record Month


- President, Patton Fund Management, Inc.

ALL BLOG CONTENT IS FOR INFORMATIONAL PURPOSES ONLY. ANY REFERENCE TO OR MENTION OF INDIVIDUAL STOCKS, INDEXES, OR OTHER SECURITIES ARE NOT RECOMMENDATIONS AND ARE SPECIFICALLY NOT REFERENCED AS PAST RECOMMENDATIONS OF PATTON WEALTH ADVISORS. ALL GRAPHS, CHARTS, AND TABLES ARE PROVIDED FOR ILLUSTRATION PURPOSES ONLY. EXPRESSIONS OF OPINION ARE ALSO NOT RECOMMENDATIONS AND ARE SUBJECT TO CHANGE WITHOUT NOTICE IN REACTION TO SHIFTING MARKET, ECONOMIC, OR POLITICAL CONDITIONS.  IT IS COMMON FOR US TO USE A FUND AS A PROXY FOR AN INDEX OR ASSET CLASS.  FOR MORE DETAILS SEE OUR FULL DISCLOSURE HERE.

Market Commentary for the week ending December 4th, 2020

Summary

  • Stocks worldwide continue their climb with small stocks posting their best monthly return in 4 decades.
  • Employment in the U.S. improves but at a much slowed pace.
  • 10-Year Treasury Bond yields reach a post-pandemic high.

 

Buying Stocks at Record Highs

All three of the major market averages closed at record highs as the recovery from the selloff earlier in the year continues and optimism persists about vaccines and a return to normal in the coming months. With markets at record highs, I’m often asked by investors if this is a good time to be investing. The answer is yes!

The fact is that stock market indexes are often at or near all-time record highs just as they are now. During the past 93 years the S&P 500 has been at or within 5% of an all-time record high 34.2% of the time or 1 of every 3 days!

Frequency of S&P 500 at or within 5% all time high

Source: www.YahooFinance.com

Some investors believe that waiting for stocks to fall from highs before purchasing is prudent but this simply is not true. The biggest challenge is that when stocks are at record highs, they often continue to new record highs. My research shows that when buying stocks at or near record highs, the average return during the next 12 months is actually higher than when otherwise waiting.

Next 12 month performance

Source: www.YahooFinance.com

If you have determined that owning stocks for the long-term is in your best interest, I believe the best time to do so is immediately. Generally, the more time you have in the market, the more money you will make. There is no research I know of that supports waiting for a selloff.

Interesting Numbers

33109

According to a Bloomberg study, zip code 33109 is the wealthiest in America with an average income of $2.2 million annually. This zip code represents Fisher Island, a 216-acre barrier island near Miami, and home to just 218 households as of 2015. The second richest, 94027, represents a portion of California’s silicon valley with a median home value of nearly $6.5 million.

16.1%

The U.S. personal savings rate spiked early in the pandemic and remains at a record 16.1% at the end of September. This indicates that average American has cut their spending but some studies show that it has been primarily higher income households who have increased savings while lower income earners have suffered. Prior to the pandemic the savings rate just 7.3%.

US personal savings rate

Source: www.YCharts.com

This Week’s Performance Highlights

Market Indexes week ending December 4, 2020

Source: www.YCharts.com

  • Stocks continued to power higher with large U.S. stocks gaining another +1.7% as measured by the S&P 500, the Dow lagged with a gain of 1.0%, and the NASDAQ Composite outperformed rising +2.1%. All three indexes are at all-time record highs.
  • Energy stocks were once again the best performing sector up +4.4% followed by healthcare and technology while utilities were the only sector posting a meaningful loss.
  • Small U.S. stocks outperformed for another week up +2.1%. November was a blockbuster month for small stocks, the best in at least 4 decades, gaining +20.4%! The second best month, as shown in the below table, was February of 2000 which was then followed by 7 down months of the next 9. The surge, though, in April 2009, was followed by multiple months higher as the new bull market kicked off after the 2008 financial crisis.

    Small us stocks best monts ever

    Source: www.YCharts.com

  • International stocks also continued higher with developed countries gaining +1.2%. The Eurozone markets also continued to outperform gaining +1.8% while Japan lagged behind slipping -0.3%.
  • Emerging markets averaged a gain of +1.6% with many up sharply such as South Korea,, Brazil, and Mexico up +6.6%, +6.2%, and +4.1% respectively. The overall average was held back by the largest of the emerging markets, China, down -2.9% on the week.
  • Gold turned in a strong gain of +2.7% for the week. This was its first strong performance since early November prior to the reported vaccines. Commodities inched higher by +0.1% and real estate stocks rallied +2.3%.
  • Bond prices eased -0.4% resulting in higher yields. The yield on the benchmark 10-Year Treasury climbed to a post-pandemic high of 0.970%.

Economic Indicators

Employment in the U.S. continued to improve, adding 245,000 jobs in November, but at a much slower pace than in recent months. This number fell well short of economists’ estimate of 432,000 and last month’s 610,000.

Adding the most jobs during the month was the transportation and warehousing industry, adding 145,000 jobs, arguably taking some of those from the retail sector that lost 34,700 as businesses gear up for what is expected to be a continued surge in online shopping. There was a loss of 99,000 government jobs of which 93,000 were temporary census jobs.

The unemployment rate inched lower from 6.9% to 6.7% this month. Although this is an improvement it was almost entirely the result of more than 400,000 exiting the labor market or, in other words, they stopped looking for jobs. As the accompanying graph shows,there are more than 7 million people not counted as unemployed although they still want a job. This is up from less than 5 million pre-pandemic.

People not in labor force who want a job

Source: www.bls.gov

Weekly initial jobless claims came in much better than expected at 712,000 compared to 787,000 the week before. This was a welcomed improvement after multiple weeks of rising numbers. The total number of people receiving benefits from all programs dropped from 20.51 million to 20.16 million.

Both the manufacturing and services industries are expanding according to reports from the Institute for Supply Management (ISM). The reading on manufacturing came in at 55.9%, anything above 50% indicates expansion, with new orders and production the strongest components of the report. The services sector’s reading of 55.9% was fueled by growth in 14 of the 18 sectors monitored with arts and entertainment and restaurants among the few losers.

Upcoming Economic Reports

  • Consumer Price Index (CPI)
  • Producer Price Index (PPI)
  • Initial Jobless Claims
  • Consumer Sentiment Index

Contact Mark A. Patton :

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. Any specific securities or investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own situation before making any investment decision including whether to retain an investment adviser.

All expressions of opinion are subject to change without notice in reaction to shifting market, economic or political conditions.  Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. This content was created as of the specific date indicated and reflects the author’s views as of that date. Supporting documentation for any claims or statistical information is available upon request.

Past performance is no guarantee of future results.  Any comments about the performance of securities, markets, or indexes and any opinions presented are not to be viewed as indicators of future performance.

Investing involves risk including loss of principal.

Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly. For more information on specific indexes please see full disclosure here.

Any charts, tables, forecasts, etc. contained herein are for illustrative purposes only, may be based upon proprietary research, and are developed through analysis of historical public data.

All corporate names shown above are for illustrative purposes only and are NOT recommendations.

International investments involve additional risks, which include differences in financial accounting standards, currency fluctuations, geopolitical risk, foreign taxes and regulations, and the potential for illiquid markets. Investing in emerging markets may accentuate these risks.

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed-income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Lower-rated securities are subject to greater credit risk, default risk, and liquidity risk.

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