The 1% Move Report

Wealth Management — November 13, 2020

• US stocks traded higher Friday as the S&P 500 rose 1.4% to close at 3,585. With the rally, the index is now up 11% on the year to date.
• This week's pattern of alternating between daily gains and losses continued Friday, with the index recovering the prior session's 1% loss. With Friday's rally, the index closes at a new all-time high. No obvious catalyst to point to for Friday's rally, though markets demonstrated a cyclical tilt, with small-caps and cyclical sectors outperforming on the session.
• All 11 S&P 500 sectors were higher, with Energy (+3.8%) and Real Estate (+2.3%) outperforming the broader market, while Utilities (+0.9%) and Information Technology (+0.9%) lagged.
• Rates were higher across the curve, with the 10-year Treasury rising to 0.89% as of the 4 p.m. equity market close. Gold moved 0.6% higher to $1,887 per ounce, while WTI oil fell to $40 per barrel; the US dollar weakened modestly in the trading session, as measured by the US Dollar Index.

US stocks traded higher on Friday as the S&P 500 gained 1.4%. With Friday's rally, the index ends the week up 2.2%, a strong follow-through on last week's 7%+ rally. This week began with equity markets trading sharply higher following positive vaccine data released early Monday morning. From there, it was more back-and-forth action as markets weighed the risks posed by a rising number of COVID-19 cases across the US against the potential for more positive vaccine data to be released in the weeks ahead. While equities closed near their highs for the week, Treasury markets did give back some of their early-week moves, with the 10-year Treasury yield settling back below 0.90% to end the week, after moving as high as 0.98% on Tuesday. This week saw a notable rotation within equity markets, with value sharply outperforming growth and cyclicals outperforming defensives. Underscoring this rotation, while the S&P 500 ends higher on the week and the Russell 2000 small-cap index rallied 6.1% on the week, the tech-heavy NASDAQ 100 actually fell. Looking ahead, next week will see a number of economic data releases, with Retail Sales, Industrial Production and a host of housing related data on the docket.

Over the past several months, the S&P 500 has traversed two-and-a-half distinct market phases. The first phase fully discounted the sudden-stop COVID-19 lockdown recession from February 19-March 23 in a -34% bear market drawdown. Second, was the repair phase, which was dominated by “do whatever it takes” and outsized policy moves by both the Federal Reserve and Congress where stimulus totaled almost 47% of GDP and was accompanied by a nearly 60% retracement of the sell-off from March 24-April 30. And, finally, the current early innings of the recovery phase, which has been characterized by the faster-than-expected reopening of the economy, has recently allowed the index to surge to new all-time highs. Although the GIC has been looking for a V-shaped recovery and a decisive shift in market leadership that has accompanied recessions in the past, and we have been well positioned for recent rotations toward small caps, value style, international stocks and cyclicals like Financials, we acknowledge that the market has moved very far, very fast. With some of the easy money having been made off the trough, we think markets remain range-bound for the next 3-6 months as the twists and turns of this particular recession with its dependency on the virus trajectory and the true pace of full economic reopening likely to be opaque and lumpy. In this environment, we are very focused on active security selection with an eye toward valuations and risk premiums in both US stocks and corporate credit. The richness, crowdedness and concentration of the S&P 500 Index, along with our belief that US Treasuries are unattractive and that the US dollar is ultimately poised to weaken, has us also pursuing high levels of asset class diversification with above-average exposures to SMID stocks, international equities and commodities.

Market data provided by Bloomberg.

Dow Jones Industrial Average (DJIA): A price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry.

NASDAQ Composite Index: A broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market.

S&P 500 Index: The Standard & Poor's (S&P) 500 Index tracks the performance of 500 widely held, large-capitalization US stocks.

US Trade-Weighted Dollar Index: A weighted average of the foreign exchange value of the US dollar against a subset of the broad index currencies that circulate widely outside the US.