Market Summary
Investors appeared to waver between optimism and caution over the week. The S&P 500 posted a record high close on Friday, driven by gains made early in the week, finishing the week up 2.2%. The tech-heavy Nasdaq Composite lagged, sliding 0.6% as traders piled into beaten-down value names at the expense of high-flying growth stocks.
This week’s big market rotation saw the industry groups that have underperformed so far this year claw back some of their losses. On average, these industries gained 6.1% over the week, while all other sectors remained broadly flat (0.5%).
Between election results, earnings, and Pfizer’s potentially game-changing vaccine, the market has been in a state of constant flux in recent weeks. Last Monday’s positive vaccine news gave rise to the stock market’s latest attempt to wean itself off tech and rotate back into ‘value stocks’ such as cruise liners and airlines. Despite a strong start, this rotation was muted somewhat later in the week as the euphoria of finding an effective vaccine against Covid-19 buckled under the weight of the bleak shorter-term outlook.
The number of new infections of Covid-19 in the U.S. hit 150,000 for the first time, as cities and states moved at various speeds to contain the latest wave of coronavirus. Despite the potential roll-out of a vaccine in the future, for now, the global economy still remains at the whim of this pandemic.
Equities
2.2%S&P 500
As well as a rotation into value stocks, U.S. small-cap stocks also outperformed their large-cap counterpart. The Russell 2000 Index, a small-cap benchmark, climbed over 6%.
Currency
0.5%USD/EUR
The U.S dollar strengthened slightly during a topsy turvy week. as optimism about a potential coronavirus vaccine was offset by worries about how the drug will be delivered and by a surge of new infections in the United States.
Bond Yields
0.89%US 10Y TREASURY YIELD
Another choppy week for bond yields this week. Yields on the 10 Year U.S Treasury note closed just under 1% early in the week, the highest point in nearly eight months. Yields finished the week at 0.89% as the vaccine boost wore off and the shorter-term uncertainty set in.
Commodities
7.8%CRUDE OIL
U.S. crude oil jumped 7.8% this week, moving back above $40 per barrel and is now up 16% over November. Despite this recent surge from its previous lows, the latest spike in coronavirus cases looks set to weigh on demand over the shorter-term as further travel restrictions suppress fuel demand.
best17.1%Energy
Worst-1.1%Consumer Disc
Market Outlook
Early this week, some of the pandemics’ long-suffering stocks had a welcome respite as vaccine news offered light at the end of the tunnel. The likes of Carnival Corp recorded double-digit returns over the week. Conversely, the ‘stay-at-home’ stocks like Peloton and Netflix plummeted into the red as market participants seemed to assume the pandemic was over, and everything could return to normal.
The reality is, while some uncertainty has been stripped out, plenty remains. Please, do take solace in this wonderful vaccine news but let’s not get ahead of ourselves just yet by jumping into the ‘cheap stocks’. Plenty value-traps still remain for now. Those companies that have suffered most due to the pandemic will continue to be squeezed over the coming months.
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