Markets, Economy

Weekly Kickstart (11/16/2020-11/20/2020)

11/16/20 8:00 AM

iStock-626627280.jpgStocks continued higher last week, as the S&P 500 rose by 2.16 percent to 3,585.15. That was a new all-time closing high and it left the benchmark index up 10.97 percent 2020-to-date. Just as the winter wave of the coronavirus appeared to be ramping up, encouraging vaccine efficacy news showed up to help extend November’s short squeeze. The strong gains seen so far this month, however, will only benefit those actually participating in the market, which is among the reasons why we regularly stress the importance of consistent participation and remind investors of how close in proximity the “best” and “worst” days for equities can be. For the latter the latest example is seen in the S&P 500 ending the final week of October with a 5.64 percent plunge, the largest decline since March and the worst pre-election performance on record. The following week, though, the broad index surged by 7.32 percent and added to those gains these past few trading sessions. This frequent juxtaposition helps explain why “time in the market” so often outperforms attempts to “time the market,” and is also why some financial professionals will advocate the benefits of lump sum investing.

y783y54785

Indeed, lump sum investing basically means putting all the money you have to work in the market as soon as possible. Given the above-mentioned nearness of the best and worst days along with the fact that historically equities have spent much more time in a bull market than a bear market and it should not be too surprising why this simple strategy can often deliver better results than more convoluted investment approaches. Of course past performance is no guarantee of future returns, and even if stocks do more often rise than fall this does not mean the drawdowns will not at times be severe enough to shake out weak hands. Moreover, a new commitment of all of one’s capital to stocks when volatility is elevated or alternatively when equities are near all-time highs can understandably be difficult for some investors, and this is why financial advisers may instead recommend dollar cost averaging for those less comfortable with lump sum investing. Dollar cost averaging involves investing predetermined, fixed dollar amounts over a period of time, an approach which a J.P. Morgan analysis described as appropriate for two types of individuals: retirement plan participants and anxious investors. The report added that “As markets fall, periodic investments help participants continue to add to their portfolios; by buying more shares at lower prices, this helps speed the recovery, and compound over time. … For those investors feeling uneasy about markets, a DCA approach can help those clients gradually get invested. However, investors would be wise to consider the implications of such a decision: cash sitting on the sidelines is continuously losing purchasing power and should markets perform well, a DCA strategy will forgo upside potential.”

543yy34545

To recap a few of the things we learned about the economy last week, the positives included that household inflation pressures remained muted, small business owner optimism held steady despite elevated political and economic uncertainty, and a key gauge of Americans’ confidence in the labor market climbed to an all-time high. As for the negatives, mortgage applications fell, consumer sentiment cooled, total job vacancies declined, the pace of hiring moderated, and an alarmingly high number of Americans continued to make first-time claims for unemployment benefits. This week the pace of economic data picks up slightly with a few important reports on manufacturing, housing, and consumers scheduled to be released.

45y3y35445

What To Watch:

Monday

  • 3-Yr Note Settlement
  • 10-Yr Note Settlement
  • 30-Yr Bond Settlement
  • Empire State Manufacturing Index 8:30 AM ET
  • Mary Daly Speaks 1:45 PM ET
  • Richard Clarida Speaks 2:00 PM ET

Tuesday

  • Retail Sales 8:30 AM ET
  • Import and Export Prices 8:30 AM ET
  • Industrial Production 9:15 AM ET
  • Business Inventories 10:00 AM ET
  • Housing Market Index 10:00 AM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET
  • Housing Starts and Permits 8:30 AM ET
  • Quarterly Services Survey 10:00 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • 20-Yr Bond Auction 1:00 PM ET

Thursday

  • Jobless Claims 8:30 AM ET
  • Philadelphia Fed Manufacturing Index 8:30 AM ET
  • Existing Home Sales 10:00 AM ET
  • E-Commerce Retail Sales 10:00 AM ET
  • Leading Indicators 10:00 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • Kansas City Fed Manufacturing Index 11:00 AM ET
  • 2-Yr Note Announcement 11:00 AM ET
  • 5-Yr Note Announcement 11:00 AM ET
  • 7-Yr Note Announcement 11:00 AM ET
  • 10-Yr TIPS Auction 1:00 PM ET
  • Fed Balance Sheet 4:30 PM ET

Friday

  • Baker Hughes Rig Count 1:00 PM ET
 

 

Sources: Econoday, J.P. Morgan, Invesco, FRBSL

Post author: Charles Couch

Disclosures