Small Caps Continue To Outshine The Large Caps While DoorDash And AirBNB Make Their Market Debuts
• Through the middle of the week it appeared as if all the major indices would set new highs, but the market fizzled as the week went on and only the small-cap Russell 2000 ended the week in positive territory with a gain of 1.0%, its sixth consecutive week of positive returns
• The declines were mild for the three larger-cap indices, as the S&P 500 gave back 1.0%, NASDAQ lost 0.7% and the DJIA lost 0.6%
• The big market news came over two back-to-back days, as DoorDash and Airbnb both made their IPO debuts, leaping an extraordinary 85% and 100% on their respective first days of trading
• While Airbnb and DoorDash were the huge IPOs that grabbed all the attention, Wall Street seemed to have a less than muted optimism about the COVID-vaccine and a potential stimulus from Congress and those both hung over the markets all week
• Most of the S&P 500 sectors retreated on the week, with 9 of the 11 ending negative
• The Energy sector led the way with a gain of 1.1% and the Communication Services sector inched up 0.1%
• Real Estate led the losers with a drop of 2.9% and Information Technology, the leader so far YTD, dropped 1.4% on the week
• The vaccine news of the week was that the FDA approved the Pfizer and BioNTech vaccine for emergency use while the UK began administering the vaccine to its citizens
• The week started with hopes that a new stimulus bill might be passed, but as the week wore on, little progress was made, adding more worries to Wall Street
• WTI Crude ended the week close to unchanged at about $46.57/barrel, up 25 cents on the week
• Volatility, as measured by the VIX, edged up slightly as the week wore on
• The 10-year yield pulled back to 0.89%
Small Caps Outpace the Larger-Caps
The major U.S. stock indices were on the way to new highs through the middle of the week, but then pulled back to finish the week in the red, except for the smaller-cap Russell 2000. The Russell 2000 moved up 1% on the week, its sixth consecutive week of positive returns and fifth consecutive week of outpacing the S&P 500, its larger-cap cousin.
To further underscore a rotation of market performers, the Energy sector was once again the leader by quite a bit, as it jumped by more than 1% despite WTI Crude prices remaining somewhat flat on the week.
Wall Street did celebrate the Initial Public Offerings of DoorDash and Airbnb on Wednesday and Thursday, respectively. DoorDash leapt 85% on its first day of trading and Airbnb leapt 100% on its first day.
There was continued positive vaccine news throughout the week, as the FDA approved the vaccine from Pfizer and BioNTech for emergency use and encouraging data was released by AstraZeneca and Johnson & Johnson.
The positive vaccine news was accompanied by a lot of negative COVID news, however, including that daily U.S. deaths from COVID surpassed 3,000 for the first time. Further, hospitalizations are up in many areas, causing renewed lockdowns and stay-at-home orders.
The latest infection numbers were seen in weekly jobless claims, which jumped from 716,000 to 853,000. These numbers were much higher than expected and the highest in about 3 months. Continuing claims also rose from 5.5 million to 5.8 million, which stopped the streak of declining claims for the past 3 months as well.
Restaurants are Really Hurting
In mid-November, the National Restaurant Association Research Group conducted a survey of thousands of restaurant operators in order to assess the economic impact of the COVID-19 pandemic.
Here are some of the key findings:
• In total, sales were down 29% from the prior year and almost 80% of all restaurant operators say their total dollar sales volume was down in October from a year ago.
• 83% of full-service operators and 67% of limited-service operators expect their sales to decrease from current levels during the next 3 months.
• 36% of operators said they are considering simply closing until the pandemic passes.
Restaurants Closing Forever
The National Restaurant Association estimates that as of December 1st, there are at least 110,000 eating and drinking places closed permanently. That’s 17% of the industry.
Here are a few more sobering statistics: on average, of the permanently closed restaurants:
• Each had been in business for 16 years and employed an average of 32 people.
• 1 in 5 had been in business for over 30 years and employed over 50 people.
Small Businesses Less Optimistic
The National Federation of Independent Business released its Small Business Economic Trends data on December 8th and reported that:
“The NFIB Small Business Optimism Index declined 2.6 points in November to 101.4 but remain well above the 47-year historical average reading of 98. Six of the 10 Index components declined and four increased. The NFIB Uncertainty Index decreased 8 points to 90, still a historically high reading. Owners expecting better business conditions over the next 6 months declined 19 points to a net 8%.”
As reported in the most recent NFIB November Jobs Report, “finding qualified employees remains a problem for small business owners with 89% of those hiring or trying to hire reporting few or no ‘qualified’ applicants for the positions they were trying to fill.”
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Sources: restaurant.org; nfib.org; msci.com; factset.com; fidelity.com; Nasdaq.com; wsj.com; Morningstar.com