The 1% Move Report

Timely commentary on market performance whenever the S&P 500 changes more than 1% in a day.






Wealth Management — November 16, 2020

What Happened in the Markets?

  • US stocks traded higher Monday as the S&P 500 rose 1.2% to close at 3,627. With the rally, the index is now up 12.3% on the year to date.
  • Equity markets opened the week on a strong note as the S&P gained 1.2% on Monday; the rally comes after two straight weeks of strong gains for equities. Today's rally appeared, in part, driven by positive initial vaccine efficacy data released by a biotechnology company, the second such announcement surrounding two separate vaccines under development within the last week. With now a second vaccine candidate showing positive initial results, hopes are rising that a scalable vaccine could be within reach by early next year, and with it, a true 're-opening' of the economy could soon follow. As was the case last week, cyclical sectors most levered to such a "re-opening" outperformed sharply on Monday.
  • Ten of the 11 S&P 500 sectors were higher, with Energy (+6.5%) and Industrials (+2.5%) outperforming the broader market, while Real Estate (+0.5%) and Health Care (-0.2%) lagged.
  • Rates were mixed across the curve, with the 10-year Treasury rising to 0.90% as of the 4 p.m. equity market close. Gold was flat, while WTI oil moved to over $41 per barrel; the US dollar weakened modestly in the trading session, as measured by the US Dollar Index.

Catalysts for Market Move

US stocks traded higher on Monday as the S&P 500 gained 1.2%. After two straight weeks of strong gains for the S&P 500, equities began the new week with a rally as hopes remain high following positive vaccine data. Similar to a week ago, a second vaccine under development showed strong initial efficacy in results released Monday morning, boosting sentiment as it appears increasingly likely a scalable vaccine could be delivered by early next year. As hopes for a vaccine rise, expectations for a "re-opening" in the economy are also building, and with it cyclical stocks have performed quite well in recent sessions; this pattern was again evident on Monday, with Energy, Industrials, Financials and Materials the four strongest-performing sectors on the session. While cyclical stocks led the market higher, the action in rates was more muted, unlike last week when long- end Treasuries sold off following the positive vaccine data. While hopes surrounding a vaccine are rising, markets will also need to balance the reality of rising COVID-19 case growth, which could lead to more negative impacts in the immediate term. Looking ahead, a busy week for economic releases with Tuesday's retail sales and industrial production reports as well as a host of housing-related data throughout the week.

The Global Investment Committee’s Outlook

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.

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