Read the 10 stories to remember from the week which ended December 11.
Story #1: Booming IPOs
A booming IPO (initial public offering) market potentially indicates that amidst record low interest rates and elevated cash levels, investors are pushing themselves further out on the risk spectrum. Despite a year of high economic uncertainty, 2020 has been the busiest year ever for initial public offerings that raised more than $1 billion. Last week, AirbnB soared +112% on the first day of trading while DoorDash surged by 86%. Airbnb and DoorDash IPOs added to the list of 30 IPOs on U.S. exchanges this year to raise at least $1 billion, nearly double the prior record of 18 set in 2014. According to Renaissance Capital, 2020 is on track to be the highest volume and busiest IPO year since at least 2014.
Story #2: Extended momentum
The major indexes hit new highs on Wednesday as positive vaccine news boosted investors sentiment. Equities pulled back the next two days to end the week mixed. Following an uninterrupted month-and-a-half-long rally, the S&P 500 is currently trading 16% above its 200-day moving average, indicating that momentum is extending. The only two times over the last 30 years when this gap was this wide were in January 2004 and October 2009.
Story #3: U.S small caps and Energy stocks outperformed
The small-cap Russell 2000 Index recorded a modest weekly gain, outperforming the large-cap S&P 500 Index for the fifth consecutive week and recorded a modest gain. Within the S&P 500, the energy sector outperformed by a wide margin, as international (Brent) oil prices crossed USD 50 per barrel for the first time since the onset of the pandemic. Meanwhile, Information technology and real estate shares underperformed. On Friday, the Dow benefited from an epic melt-up in Disney, which surged by 13% and added 150 points to the index by itself.
Story #4: Covid situation remains hectic despite a brightening vaccine outlook
On Thursday, an FDA panel recommended emergency use authorization for the Pfizer vaccine, spurring hopes that distribution could begin as early as the following week. Meanwhile, a predicted post-Thanksgiving surge sent hospitalizations to new highs, while daily U.S. deaths from the virus crossed 3,000 for the first time. California announced new stay-at-home orders, and gauges of retail foot traffic, airline passenger traffic, and other high-frequency data indicated that consumers were growing more cautious. In Europe, France will continue its lockdown beyond the December 15 review date because coronavirus infections remain well above the target level. Germany is set to follow.
Story #5: The gap between current economic reality and asset prices remains wide
Applications for first-time unemployment benefits reported last week rose to the highest level since September, and ongoing unemployment benefits recorded their first increase since August. This suggests that new restrictions in activity to curb the spread of the virus are pressuring the labor market and pose near-term challenges to the recovery. Indeed, the impact of the latest wave of infections was perhaps most evident in U.S weekly jobless claims, which jumped from 716,000 to 853,000, the highest level in nearly three months.
Story #6: Bipartisan U.S relief bill remains in doubt
Whether Congress would respond to the slowdown with further fiscal stimulus remained in doubt. On Wednesday, a bipartisan group of lawmakers released the broad outlines of a USD 908 billion package, which included both Republican demands for a liability shield for businesses against coronavirus claims and Democratic demands for assistance to state and local governments. Leaders on both sides expressed continuing reservations about the proposal, however, while other lawmakers demanded that any package also include a new set of direct payments to individuals.
Story #7: Yields fall on Brexit and stimulus worries
Treasury yields decreased through most of the week amid uncertainty over fiscal stimulus talks in the U.S. and Brexit trade negotiations. The long end of the yield curve outperformed while the U.S 2-year bond yields plunged back near record lows. Core eurozone bond yields fell amid growing concerns about the possibility of a no-deal Brexit and another injection of stimulus by the European Central Bank (ECB), although optimism related to coronavirus vaccines and expectations of further U.S. fiscal stimulus moderated the overall fall. Peripheral eurozone bond yields broadly followed core markets.
Story #8: European shares fell despite EU approving historic budget and ECB expanding and extending stimulus measures
European shares fell on concerns about the rising numbers of coronavirus cases in key economies and uncertainty surrounding a post-Brexit trade deal and U.S. stimulus measures. The STOXX Europe 600 Index ended the week about 1.00% lower. The European Union passed the EUR 1.8 trillion budget, which includes a EUR 750 billion coronavirus recovery fund, for 2021 to 2027 after Hungary and Poland dropped their objections to tying payments to rule of law principles. Meanwhile, the ECB injected more stimulus into the recessionary economy and forecast a slower recovery next year. Policymakers increased the Pandemic Emergency (asset) Purchase Programme by EUR 500 billion to EUR 1.85 trillion and extended it for another nine months to March 2022. They also agreed to provide banks with more ultra-cheap loans until June 2022, extending this program by a year.
Story #9: Post-Brexit talks to continue until Sunday
Talks between British Prime Minister Boris Johnson and Ursula von der Leyen, the European Commission president, on Wednesday failed to break the deadlock over a UK-EU trade deal. The two leaders agreed to set a “final” deadline of Sunday for their negotiating teams to make a last attempt to reach agreement. A day later, Johnson said there was a “strong possibility” of no deal. An unidentified source cited by the Reuters news agency said that von der Leyen told EU leaders at a summit that “the probability of a no deal is higher than of a deal.” The Pound tumbled over the week while the FTSE index was flat. UK gilt yields also declined on receding hopes of a post-Brexit deal and Bank of England Governor Andrew Bailey hinting that the central bank could implement negative interest rates.
Story #10: A mixed week for commodities
Commodities ended the week mixed with silver down 1%, crude up around 1% and copper unchanged (although they were some big intraweek swings). Gold was unchanged as well despite real yields falling notably over the week (suggesting more upside for gold). Uranium stocks had another strong week with the Global X Uranium ETF (URA) gaining 9% over the week.
Source: www.zerohedge.com, T Rowe Price.
