Monday Morning QB - Market Observations:
- Pfizer Covid-19 Vaccine En Route to Each State and Immunizations to Begin Today
- New Applications for Unemployment Benefits Jumped to a Nearly Three-Month High Last Week
- At the Producer Level, Inflation Rose by the Smallest Amount in Seven Months
- After Several Months of Growth, Consumer Borrowing Slowed in October According to Federal Reserve Data
- Almost all Major U.S. Stock Indexes Have Hit All-time Highs Recently, Prompting the Question “How Much Longer Can this Go On?
Monday Morning QB - Market Performance:
The major U.S. indexes hit new highs during the week, but pulled back to end the week mixed.
The small cap Russell 2000 outpaced the large cap S&P 500 for the fifth consecutive week, recording a modest gain.
Within the S&P 500, the energy sector continued to outperform by a wide margin as international (Brent) oil prices crossed $50 per barrel for the first time since the onset of the coronavirus pandemic.
The Dow Jones Industrial Average finished the week down -172 points to 30,046—a decline of -0.6%. The technology-heavy NASDAQ Composite retreated -0.7%.
By market cap, the S&P 500 ended the week down 1.0%, while the midcap S&P 400 ticked down -0.2%, and the small cap Russell 2000 finished the week up 1.0%.
Covid-19 Vaccine On the Way
Thousands of vials of the long-awaited Covid-19 vaccine are slated to arrive in all 50 states Monday as top U.S. health officials express hope that health care workers can begin administering the injections immediately to the most vulnerable Americans.
This first delivery of the highly prized vaccine is being delivered by UPS from Pfizer's Michigan plant to 636 locations across the U.S. in a complex, highly secure protocol involving keeping the vaccine at extremely low temperatures at all times and guarding not only the vaccines temperature but each batch's second by second location at all times.
The Pfizer-BioNTech two-shot vaccine is recommended for all people ages 16 and older. The U.S. plans to distribute 40 million vaccine doses in the next few weeks, followed by 50 to 80 million doses in January and February.
New Applications for Unemployment Jump
The Bureau of Labor Statistics reported new applications for unemployment benefits jumped to a nearly three-month high last week after a record surge in coronavirus cases and filing delays tied to the Thanksgiving holiday.
Initial jobless claims surged by 137,000 to 853,000 new claims. Economists had expected new claims to total a seasonally adjusted 720,000. New jobless claims rose the most in the states of California, Texas, Illinois and New York where coronavirus cases have risen sharply again.
Continuing claims, which counts the number of Americans already receiving benefits, climbed by 230,000 to a seasonally-adjusted 5.76 million.
Analysts noted the increase doesn’t bode well for an improving jobs picture in December. Robert Frick, corporate economist at Navy Federal Credit Union stated, “Given Covid-19 cases and deaths are now regularly setting new highs, these reports put into question job growth in December, especially given the rapid slowdown in growth in November.”
The number of job openings in the United States rose slightly, but the number of Americans being laid off rose even faster, the Labor Department reported.
Job openings ticked up to 6.65 million from 6.45 million in October, with about 5.8 million people being hired. However, separations—layoffs, firings, and retirements, rose as well to 5.1 million.
By sector, job openings rose the most in health care and manufacturing, while retail declined the most. Retailers have continued to be one of the sectors hardest hit by the pandemic. Furthermore, retailers are expected to hire fewer people this holiday season.
The “quits” rate, rumored to be closely watched by the Federal Reserve as providing a more accurate reading of the status of the labor market, remained unchanged at 2.4% among private-sector employees.
Inflation Remains Relatively Unchanged
The cost of goods and services at the consumer level rose modestly in November but remained relatively low.
The Bureau of Labor Statistics reported the consumer price index (CPI) increased 0.2% in November, a tick above economists’ estimates. The pace of inflation over the past year remained unchanged at 1.2%.
For reference, consumer inflation had been running at a much higher 2.3% just prior to the pandemic outbreak. A separate measure of inflation that strips out the often-volatile food and energy categories known as the “core rate” also rose 0.2% last month. The consumer core rate has risen 1.6% in the past year.
At the producer level, inflation rose by the smallest amount in seven months underscoring the lack of inflationary pressure in the economy still weighed down by the effects of the coronavirus pandemic.
The Labor Department reported the Producer Price Index (PPI) ticked up 0.1% this week, matching forecasts. Over the past year, wholesale inflation is up just 0.8%. That number had been growing at an annual rate of 2% in January—shortly before the coronavirus pandemic emerged.
Higher prices for goods, mainly energy, were the biggest contributor to the increase in wholesale costs last month, the government said.
Another measure of wholesale inflation that’s less prone to sharp swings, also known as the core rate, increased 0.1% last month. This core rate has risen just 0.9% in the past year, a tick higher than in October.
Consumer Borrowing Slows in October
After several months of growth, consumer borrowing slowed in October, according Federal Reserve data.
Total consumer credit increased by $7.2 billion bringing annual growth to 2.1%. That was down from a $15 billion gain in September. Economists had expected the strength in September to continue, estimating a $17 billion increase.
Revolving credit, such as credit cards, fell 6.7% in October after a 3.2% jump in the prior month. Non-revolving credit, typically auto and student loans, rose at a 4.8% rate after a 4.7% rate in September.
Separate data from the New York Fed found that credit card balances fell by $10 billion in the third quarter after a record $76 billion decline in the second quarter.
The data does not include mortgage loans, which is the largest component of household debt. Mortgage originations came in at $1 trillion in the third quarter, the second largest quarterly increase on record, the New York Fed said.
U.S. Stocks Indexes Reach All-Time Highs
Almost all major U.S. stock indexes have hit all-time highs recently, prompting the question, “How much longer can this go on?”
Analysts at LPL Financial addressed this question in its latest 2021 market outlook, and it is good news for market bulls!
LPL analysts write, “Reviewing some of the previous major bear market lows—most recently in March 2009—reveals that stocks tended to add gains well after the initial surge.”
As seen in the chart below, the 2nd year gains (shown in light blue) following a decline of 30% or more continue to be strong, averaging an additional 24%, and none were negative going back to 1970. (Data from FactSet, chart from LPL Research)
A Final Thought...
With the shipment of the Covid-19 vaccine this week, we will watch closely to see how the markets respond.
The rollout of this vaccine is being done in record time and the first Americans will now receive the vaccine. Will we see the effectiveness we all hope for to eventually reclaim normalcy? Only time will tell as we await the results.
In the meantime, have a good week, stay safe, and wash your hands!