Wealth Management — November 18, 2020
- US stocks traded lower Wednesday as the S&P 500 fell 1.2% to close at 3,568. With the sell-off, the index is now up 10.4% on the year to date.
- The S&P 500 declined for a second straight session on Wednesday as stocks look to consolidate recent gains after the index closed at a new all-time high on Monday. There was no obvious catalyst to point to for Wednesday's sell-off with most of the losses coming in the final half hour of the trading session. Wednesday's news flow was representative of much of the past two weeks, with more positive news on the vaccine front this morning countered by growing concerns over rising COVID-19 spread across much of the United States.
- All 11 S&P 500 sectors were lower, with Industrials (-0.5%) and Consumer Discretionary (-0.8%) outperforming the broader market, while Utilities (-1.9%) and Energy (-2.9%) lagged.
- Rates were slightly higher across the curve, with the 10-year Treasury rising to 0.87% as of the 4 p.m. equity market close. Gold was 0.5% lower, while WTI oil moved higher to nearly $42 per barrel; the US dollar was flat on the trading session, as measured by the US Dollar Index.
US stocks traded lower on Wednesday as the S&P 500 fell 1.2%. After closing at a new all-time high on Monday, it has been back-to-back days of losses for the S&P 500 as markets look to consolidate recent gains. Given the extent of the post-election rally, Wednesday's decline is only modest in context and the index had traded in positive territory for much of the session before giving way to a late-day slide. While all 11 S&P 500 sectors did finish the day lower, this weakness was not corroborated by Treasury markets, with yields actually ending the day slightly higher across the curve. Markets continue to grapple with two-way risk as it relates to COVID-19, as optimism around potential vaccines and treatments has been somewhat counter-balanced by concerns surrounding rising COVID-19 spread. While recent updates on several vaccine candidates have been positive and it appears increasingly likely scalable vaccine production could drive a more sustainable re-opening in 2021, a recent uptick in COVID-19 cases across much of the US and globe does drive near-term concern. In response to new-case growth, several states and local governments have re-instated various protocols aimed at slowing virus spread and rolled back some of their re-opening measures in recent days. While rising COVID-19 spread may drive near-term concerns, much progress has been made on the vaccine/treatment front and ultimately optimism around 2021 may limit some of the market risks posed by the recent surge in cases. Looking ahead, Thursday morning will see the weekly jobless claims release, two regional Fed business surveys, and the October existing home sales report.
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.