Markets, Economy

Weekly Kickstart (11/23/2020-11/27/2020)

11/23/20 8:00 AM

iStock-626627280.jpgStocks were under pressure last week, as the S&P 500 fell by 0.77 percent to 3,557.54. That still left the benchmark index up 10.11 percent 2020-to-date, and just 1.91 percent below the all-time closing high. The selling was far from uniform and several sectors even managed to post a solid week-over-week gain. One of the most noteworthy bright spots remains small-cap value, which has historically at times outperformed in the years following a severe downturn, and some traders suggest that the recent price action in the market can be at least partially explained by a rotation out of high-flying growth stocks into this arena that has largely underperformed during the past few years. However, the belief that small-cap value will become the new momentum trade is no longer a contrarian viewpoint. In fact, the latest Bank of America Merrill Lynch global fund manager survey showed that the number of professional investors who believe value will outperform growth stocks, and that small-caps will outperform large-caps, has skyrocketed recently, with the latter even hitting a record high this month.

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Other interesting findings in the November poll include that roughly two in three fund managers believe “long technology stocks” is the “most crowded” trade at the moment, followed by “short banks,” “long corporate bonds,” and “long gold.” It is of course worth noting that “long tech” has been considered the most crowded trade for all of 2020 and yet this sector has still easily outperformed the rest of the market, as evidenced with the NASDAQ’s 32.12 percent year-to-date gain (see above). More generally, overall sentiment has clearly become quite bullish recently, with reported cash allocations having already fallen back to pre-pandemic levels, albeit still above BAML’s “sell signal” threshold. A net 6 percent of surveyed managers similarly said that they are currently taking on a “higher than normal” level of risk, the most elevated reading since January 2018. The recent influx of encouraging vaccine efficacy headlines has contributed to such optimism, and economic growth and profit expectations even managed in November to climb to a nearly 20-year high. However, the ultimate timetable for widespread vaccine availability is uncertain, and many other near-term macro unknowns (potential volatility catalysts) remain. Any regular investors uncomfortable navigating this environment should consider using the post-election run-up in the market as another opportunity to review their positioning and make sure it is properly aligned with their risk tolerance, nearness to retirement, and other unique variables. As always, we are here to help with any questions you may have.

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To recap a few of the things we learned about the economy last week, the positives included that mortgage applications rebounded, existing home sales surged, housing starts jumped, homebuilder optimism hit another record high, trade-related inflation pressures eased, industrial production rose, and capacity utilization increased. As for the negatives, the rate of building authorizations slowed, regional manufacturing activity cooled, retail sales growth disappointed forecasts, and an alarmingly high number of Americans continued to make first-time claims for unemployment benefits. This holiday-shortened week the pace of economic data picks up with several important reports on factory activity, housing, consumers, and U.S. gross domestic product growth scheduled to be released, along with the potentially market moving minutes from the latest FOMC meeting due out on Wednesday.

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What To Watch:

Monday

  • Chicago Fed National Activity Index 8:30 AM ET
  • PMI Composite Flash 9:45 AM ET
  • 2-Yr Note Auction 1:00 PM ET
  • 5-Yr Note Auction 1:00 PM ET

Tuesday

  • Case-Shiller House Price Index 9:00 AM ET
  • FHFA House Price Index 9:00 AM ET
  • Consumer Confidence 10:00 AM ET
  • Richmond Fed Manufacturing Index 10:00 AM ET
  • 2-Yr FRN Note Auction 11:30 AM ET
  • 7-Yr Note Auction 1:00 PM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET
  • Durable Goods Orders 8:30 AM ET
  • GDP 8:30 AM ET
  • International Trade in Goods [Advance] 8:30 AM ET
  • Jobless Claims 8:30 AM ET
  • New Home Sales 10:00 AM ET
  • Consumer Sentiment 10:00 AM ET
  • Personal Income and Outlays 10:00 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • Survey of Business Uncertainty 11:00 AM ET
  • EIA Natural Gas Report 12:00 PM ET
  • Baker Hughes Rig Count 1:00 PM ET
  • FOMC Minutes 2:00 PM ET

Thursday

  • Thanksgiving Day Holiday

Friday

  • NYSE Early Close
  • SIFMA Rec. Early Close 2:00 ET
  • Fed Balance Sheet 4:30 PM ET
 

 

Sources: Econoday, BAML, FRBSL

Post author: Charles Couch

Disclosures