Read the 10 stories to remember from the week which ended November 27.
Story #1: Greed is good…Record highs for US equities
After posting mixed results in the previous week, the major indexes resumed the upward momentum seen since the start of November. The recent vaccine headlines and diminishing political uncertainty have put global and European-specific stock markets on track for their best month ever and the major US equity indices on track for their best month since 1987. Within the Russell 3000, many stocks are up more than 20% since the start of the month. Tesla surpassed Berkshire Hathaway in market cap for the first time ever. Signs of complacency abound. Call options volume is surging, net short interest as a percentage of market cap is collapsing while VIX flash-crashed intraday below 20 - its lowest since February. The VIX is down 49% on Friday from a recent high on October 28.
Story #2: Record highs for US equities
Main US equity indices gained between 2% and 3%, with most of the increase coming early in the holiday-shortened week amid positive news regarding coronavirus vaccines. The S&P 500 and the Dow added to the records they had set earlier in November, while the NASDAQ topped a previous all-time high that it had recorded in early September. The Dow topped 30,000 points for the first time on Tuesday but slipped below that level by Friday’s close; the NASDAQ eclipsed 12,000, a threshold it had briefly reached in early September.
Story #3: Re-opening prospects boosted cyclical stocks and Oil
Reopening hopes boosted the price of U.S. crude oil climbed for the fourth week in a row, briefly rising above $46 per barrel on Wednesday to the highest level in more than eight months. A report showing an unexpectedly large drop in U.S. crude supplies helped as well. Within equities, cyclical shares outperformed, particularly energy stocks, while health care, utilities, consumer staples, and real estate shares lagged.
Story #4: International ex-US equities rose for a fourth consecutive week
In Japan, the Nikkei 225 advanced 4.4% and is up 16% thus far this month, marking its highest level since April 1991. EU stocks recorded slight gains for the week, as positive vaccine developments, fading U.S. election uncertainties, and expectations that the U.S. Congress may compromise on a smaller economic stimulus were offset by news that the UK and Germany extended coronavirus restrictions and waning vaccine euphoria. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 0.93% higher, while Germany’s DAX Index advanced 1.51%.
Story #5: China stocks rose despite rising domestic bond issuers defaults
Chinese stocks slightly rose for the week as solid economic data outweighed concerns about rising defaults among domestic bond issuers. During the week, some state-owned enterprises (SOEs) whose bonds have been under pressure experienced a sell-off in their shares. Though year-to-date bond defaults are only slightly higher than year-ago levels, the recent rash of SOE bond defaults comes as several large state enterprises have moved their most valuable assets off balance sheet before allowing their bonds to default—a move that has drawn the ire of Beijing and highlighted a power struggle between central and local governments in China.
Story #6: The dollar is down for the 3rd week in the last 4
The dollar has plunged almost non-stop since the election, closing at its weakest vs its fiat peers since April 2018 (and unchanged since Jan 2015). Over the week, the yen strengthened versus the U.S. dollar and traded near JPY 104 on Friday while the yuan ended broadly flat against the U.S. dollar.
Story #7: A volatile week for “anti-fragile” assets
Gold recorded its 3rd straight weekly decline, its 4th straight monthly drop and worst month since November 2016, breaking (and closing) below its 200-day moving average. Cryptos started the week strongly with Bitcoin closing at a record high but ended weak with Ether (ETH) flat and Bitcoin (BTC) down -10% as Bitcoin fell from $19500 to $16500. Ripple (XRP) suffered a major correction on Thursday but we note that it was up 140% on the week on Tuesday…
Story #8: Mixed macro numbers in the U.S and Europe
The number of Americans filing for unemployment benefits rose to the highest level in five weeks. The latest weekly report shows about 778,000 people filed for first-time benefits, marking the second consecutive weekly increase. It was the first instance of back-to-back weekly increases since late July. The latest monthly numbers on U.S. consumer confidence fell to 96.1 in November—the lowest level since August. Spiking coronavirus cases may have reversed a recent uptick in optimism. On the other hand, Core (excluding defense and aircraft) capital goods orders and U.S new home sales both surprised on the upside. In Europe, the preliminary IHS Markit eurozone composite purchasing managers’ index fell in November to a six-month low of 45.1 from 50.0 in October, dragged down by a sharp decline in the services sector due to coronavirus restrictions. Manufacturing activity continued to expand, but the rate of growth slowed.
Story #9: Investors welcome Yellen appointment
The U.S political environment also appeared supportive. Shares rallied Monday afternoon following reports President-elect Joe Biden was preparing to nominate former Federal Reserve Chair Janet Yellen as Treasury Secretary. Reports that Biden’s transition team was pushing Congressional Democrats to compromise with Republicans on fiscal stimulus also appeared to boost sentiment, although these were later denied by a spokesperson. On Tuesday, stocks rallied further on news that the General Services Administration (GSA) was formally beginning transition measures in preparation for a Biden administration. While still refusing to concede, President Donald Trump tweeted that he was authorizing the GSA’s action “in the best interest of our Country.”
Story #10: Germany, UK extend coronavirus restrictions
In Germany, Chancellor Angela Merkel announced in Parliament that current coronavirus restrictions would be tightened and extended until December 20, warning they may be extended again until the end of January. The UK outlined a stricter tier system to replace the month-long lockdown ending on December 2. Most of northern England will be placed on tier three, while London and the southeast will be on tier two. Conservative MPs said the government would face a rebellion when Parliament votes on the new regime next week. Portugal imposed a state of emergency for 15 days.
Source: www.zerohedge.com, T Rowe Price, John Hancock