December 7, 2020

Weekly Market Commentary November 30th to December 4th 2020

This week’s market commentary centers mainly around employment and the results were a mixed bag. As the Covid-19 pandemic is ramping back up again and the country tries to balance between the safety of shut-downs and maintaining open schools and businesses, the leisure and hospitality sector again seems to be bearing the brunt. Initial jobless claims fell to 712k for the week which, despite the enormity of that number, came in well under the expected 780k. Keep in mind that we are looking for trend data here and while 712k is lower than recent weeks, we still seem to be stuck in a 700-800k range for the past few months. Prior to the pandemic, initial jobless claims were usually between 50-200k weekly.

On Friday, the U.S. Bureau of Labor Statistics released its monthly employment report, with Non-Farm Payrolls coming in at a disappointing 245k. This is in the wake of an expected 432k forecast along with a previous month’s print of 610k. Clearly the resurgence of the Covid-19 virus is starting to take its toll once again in the jobs market. On the positive side, the unemployment rate dropped to 6.7% on the heels of last month’s surprise to the upside of 6.9%. And average hourly earnings were up 0.3% compared to 0.1% forecast. On the surface this seems like a win, but if you dig deeper, its likely more attributable to new layoffs in the aforementioned lower-paying leisure and hospitality industries, such as bars and restaurants.

In other economic releases this week, both ISM Manufacturing and Services came in well in expansionary territory, despite falling short of consensus. Construction spending beat estimates, coming in at +1.3% compared to a 1.0% estimate and -0.5% previous month. But Pending Home Sales disappointed at -1.1% vs a 2.0% estimate. Lastly, on Friday, Factory Orders ended a mixed week on a high note, beating a 0.8% forecast with a 1.0% print.

Equity markets reached new highs again as the vaccine picture starts to become clearer. Look for FDA approval in the next 10-15 days and roll-out by the end of the month to front-line medical workers. It is likely to be a tenuous couple of months however, as the timing and logistics of vaccine rollout to the general public still remains cloudy. The S&P 500 rose 1.9% for the week to a record close of 3,699. The Nasdaq advanced 2.1% this week, ending at a record 12,464. And the Dow Jones Industrials Average closed up 1.0% at 30,218. The yield curve steepened this week as 2-year U.S. Treasuries closed flat at 0.15%, while the 10-year (0.97%), and the 30-year (1.73%) were both up double-digit basis points.

Key economic releases next week include the CPI/PPI inflation data and Weekly Initial/Continuing Jobless Claims.