Weekly Market Update - November 20, 2020

Stocks End The Week Mixed Despite Positive Vaccine News, Sizzling Housing And Strong Retail Sales

• Stocks ended the week mixed as the technames and smaller-cap names outpaced their larger-cap and non-tech names on the week

• The S&P 500 and DJIA both lost ground, dropping 0.8% and 0.7%, respectively, while the tech-laden NASDAQ inched up 0.2% and the smaller-cap Russell 2000 jumped 2.4%

• The week was dominated by more COVID news, this time with Pfizer/BioNTech announcing Phase 3 results that showed a 95% effective rate and then Moderna announcing similar results

• Of the S&P 500 sectors, the Energy sector led the way with a leap of 5%, while the Industrials and Materials sectors each gained more than 1%

• The Utilities and Health Care sectors both lost more than 3% and the Real Estate sector gave back 1.7%

• Tesla’s stock leapt 20% on news that it would be added to the S&P 500 while Boeing had its 737 Max cleared for takeoff, which helped fuel its stock to a weekly gain of 7%

• Volatility was within a tight range all week, dipping mid-week before ending the week at just about the same spot where it started

• WTI Crude ended the week at just over $42/barrel, a gain of about $2/barrel

• The 10-year Treasury yield fell to 0.83%

Stocks End the Week Mixed

The U.S. stock markets endured a tug-of-war all week, as there was good news on the vaccine front and bad news on the number of coronavirus cases in many parts of the country, pushing cities and states to begin implementing closures ahead of the Thanksgiving holiday.

To underscore the point, the 30-stock, mega-cap DJIA and the smaller-cap Russell 2000 both hit new intraday highs at the beginning of the week, before giving back the gains towards week’s end.

The Energy sector led the way with a weekly gain of 5%, despite the price of oil rising modestly. And shockingly, the Energy sector is leading all the other sectors for the month, with a monthly gain of over 17% through Friday.

Investors welcomed news on the vaccine front throughout the week, as Pfizer and BioNTech, as well as Moderna, announced vaccines that were 95% effective in preventing infections. And on Friday, Pfizer announced that it had filed for emergency use authorization with the U.S. Food and Drug Administration.

The negative news had everything to do with growing cases in the U.S. and worries that the economy would take a hit before the vaccine was widely available. Many states and local governments are announcing new restrictions and shutdowns and many large schools are closing down as well.

There was a lot of economic data on the week, some positive, some not-so-much. On the not-so-much side of the ledger, weekly jobless claims rose for the first time in over a month to 742,000 although continuing claims continued to fall to 6.4 million.

The housing sector remained red-hot, with some worrying that it’s headed for a bubble. Double-digit year-over-year appreciation numbers in all regions of the country, combined with historically low interest rates, have bubble-watchers worried.

Retail Sales Up Significantly

On Tuesday, the Census Bureau released the following:

• Advance estimates of U.S. retail and food services sales for October 2020 were $553.3 billion, an increase of 0.3% from the previous month and 5.7% above October 2019

• Total sales for the August 2020 through October 2020 period were up 5.1% from the same period a year ago

• The August 2020 to September 2020 percent change was revised from up 1.9% to up 1.6%

• Retail trade sales were up 0.3% from September 2020 and 8.5% above last year

• Nonstore retailers were up 29.1% from October 2019

• Building material and garden equipment and supplies dealers were up 19.5% from last year

A few more interesting nuggets from the release:

• Restaurants are still hurting, down 0.1% on the month and 14.2% on the year

• Department stores are struggling, down 4.6% on the month and 11.9% on the year

• Clothing is also hurting, down 4.2% on the month and 12.6% on the year

• Electronics and appliance stores are up 1.2% on the month but down 3.9% on the year

Housing Market is Sizzling

According to the National Association of Realtors, existing-home sales grew for the fourth consecutive month in September as each major region saw month-over-month and year-over-year gains, with the Northeast seeing the biggest jumps.

Here are a few highlights:

• Total existing-home sales rose 9.4% from August

• Overall sales rose 20.9% year-over-year

• The median existing-home price for all housing types in September was $311,800, up 14.8% from a year ago

• September's national price increase marks 103 straight months of year-over-year gains

On the one hand, the aforementioned highlights paint a robust picture of today’s housing market. On the other hand, they might also highlight the fact that housing is either headed for – or are already in the midst of – a bubble. And unfortunately, no one sees a bubble until it has already popped.

Consider these bubble-worrisome statistics from the NAR:

• Total housing inventory at the end of September was down 19.2% from a year ago

• Unsold inventory sits at 2.7-months, down from 4- months a year ago

• Sales in vacation destination places have seen a 34% year-over-year gain in September

• Properties typically remained on the market for 21 days in September – an all-time low

• 71% of the homes sold in September 2020 were on the market for less than a month

• Distressed sales – foreclosures and short sales – represented less than 1% of sales in September

Further bubble-worrisome data includes what the four major regions in the U.S. have experienced:

• In the Northeast, existing-home sales jumped 22.9% from a year ago and the median price leapt 17.8% from September 2019

• In the Midwest, existing-home sales skyrocketed 19.8% from a year ago and the median price increased 14.8% increase from September 2019

• In the South, existing-home sales ballooned 22.3% from a year ago and the median price was up 13.0% from September 2019

• In the West, existing-home sales are up 18.1% from a year ago and the median price increased 17.1% from September 2019

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Sources: nar.realtor; census.gov; msci.com; factset.com; fidelity.com; Nasdaq.com; wsj.com; Morningstar.com

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