October 23, 2020
Mini lockdowns are implemented in Europe. Europe’s wave of infections keeps rising and policymakers are responding. Over the past week, officials in London, Paris, Vienna, Geneva, Dublin and Milan, among other cities and countries, have instituted restrictions on movements and gatherings to stem the resurgence of cases.
Stocks rotate, but only halfway. Over the past six months, small-cap stocks have outperformed large-cap stocks (S&P 600 +32.97% vs. S&P 500 +23.44%). This reverses a trend over the past three years of large-caps outperforming. The second half of the rotation discussion, whose value is outperforming growth, has yet to materialize on a sustained basis. Over the past six months, the S&P 500 Growth Index has had a price gain of 30.61%, while the S&P 500 Value Index is up 12.15%. Getting value to outperform on a sustained basis will likely require a successful vaccine for the coronavirus.
The bond market awakens from its slumber. The yield on a 10-year Treasury note was 0.69% on September 30th and now stands at 0.85% as of this writing. That may not seem like much of a change, but the 10-year yield has not been sustainably above 0.80% since mid-March. Themes that are driving bond yields higher: thoughts of future fiscal stimulus, a better economy and record Treasury issuance.
- NAHB Homebuilder Index reading for October of 85 was a new record-high in data going back to 1985.
- Housing Starts in September were below the estimate at 1.42 million annualized, while Building Permits rose nicely to 1.55 million – which is the highest level since early 2007.
- Fed Beige Book leading summary sentence was…”Economic activity continued to increase across all (12) Districts, with the pace of growth characterized as slight to modest in most Districts”.
- Weekly Initial Jobless Claims fell to 787,000, while Continuing Claims declined to 8.373 million. Both of numbers were notably lower than the prior week and expectations as the numbers from California were updated for the first time since mid-September.
- Leading Economic Index for September rose 0.7% from the prior month to a level of 107.2 (the range for the year has been a high reading in January of 112.00 to a low reading in April of 96.90). Eight of the ten components were higher month-over-month.
- Existing Home Sales in September was a recording-breaking report with the pace of sales currently at 6.54 million annualized (a 14-year high pace).
- Properties remained on the market for an average of 21 days in September – a record low.
- Supply of Homes for Sales is at 2.7 months – a record low.
- Median Selling Price increase 14.8% in September from a year ago to $311,800 – a record high.
Markets (mid-day Friday)
- Here's what markets are thinking about:
- Stocks are seeing better earnings (though prices already knew that); bonds see stimulus post-election.
- Virus is not going away anytime soon, and concerns about mini lockdowns are rising..
- Observations for the four primary markets this week:
- Stocks – A mixed week with the ex-U.S. and U.S. small- and mid-cap indexes seeing slight gains, while U.S. large-cap stocks see slight losses – led lower by the Technology sector.
- With 10 weeks remaining in 2020, the S&P 500 has a total return of 8.51%. On average, over the past 50 years (1970-2019), the S&P 500 has a total return of 10.6% per year.
- NOTE: Over those 50 years, the S&P 500 has been a gain in 40 of the 50 years (or 80%) – BTN Research
- Commodities – A positive tone in the commodity market this week with four of the six sectors higher (only energy and livestock were lower).
- Currencies – U.S. Dollar Index was slightly lower this week. The action this week was in cryptocurrencies – with Bitcoin rising 13%.
- Bonds – Yields drifted higher again this week, with a 10-year Treasury yield currently standing at 0.84% as of this writing.
- Money growth is still exceeding 20% year-over-year from the powerful stimulus and much of that continues to move towards financial markets.
- Economic Reports
- Durable Goods Orders, Consumer Confidence, S&P CaseShiller Home Price Index, Advance Q3 GDP (+32% estimate, following -31.5% in Q2), Wholesale/Retail Inventories, Personal Income/Spending, Pending Home Sales
- Senate plans a confirmation vote for judge Amy Coney Barrett for the Supreme Court
- CEOs of Facebook, Google and Twitter are expected to testify before a Senate hearing panel
- ECB, Japan, Canada and Brazil central bank meetings
- Earnings Reports
- Q3 earnings season continues with a wide array of companies (most of FAANG+M):
- Expectation for overall -21.59% decline in YoY EPS of S&P 500 (current actual = -17.3%)
- 134 companies have reported with 85.8% beating the estimate (Bloomberg)