Wealth Management — November 24, 2020
- US stocks traded higher Tuesday as the S&P 500 rose 1.6% to close at 3,635. With the rally, the index is now up 12.5% year to date.
- With Tuesday's rally, the Dow Jones Industrial average topped 30,000 for the ﬁrst time in history. Markets have climbed in recent sessions amid continued rotation into cyclical and reopening-levered stocks. As has been the case for much of the past few weeks, improved clarity on the political front post-election coupled with optimism following several positive vaccine announcements appears to be boosting sentiment as investors look toward what increasingly appears to be a strengthening economic backdrop into 2021. To that extent, Monday evening's announcement from the General Services Administration (GSA) kicking off the ofﬁcial Presidential transition process along with several high-proﬁle cabinet announcements from the President-elect in recent days may have contributed to Tuesday's rally.
- Ten of the 11 S&P 500 sectors were higher, with Energy (+5.2%) and Financials (+3.5%) outperforming the broader market, while Health Care (+0.3%) and Real Estate (-0.02%) lagged.
- Rates were higher across the curve, with the 10-year Treasury yield rising to 0.88% as of the 4 p.m. equity market close. The yield curve steepened, as 10-year rates moved higher than 2-year rates. Gold was 1.7% lower, while WTI oil moved to its highest level since early March at nearly $45 per barrel. The US dollar weakened modestly in the trading session, as measured by the US Dollar Index.
US stocks traded higher on Tuesday as the S&P 500 gained 1.6%. Today's rally in equities brought the Dow Jones Industrial Average to a new all-time high as the index crossed above 30,000 for the ﬁrst time in history. The leadership in cyclical stocks and sectors of the past few weeks has continued, with Energy and Financials the main beneﬁciaries so far through the ﬁrst two trading days of this holiday-shortened week. Markets have rallied sharply recently as the post-election environment has provided more political clarity, and perhaps more importantly, a number of positive vaccine developments have allowed investors to start thinking about what the post-pandemic economy could look like should normalization come next year.
Tuesday's market action was largely representative of the month: cyclical sectors, small-caps and oil rallied sharply while Treasuries, gold and the US dollar moved lower. While difﬁcult to pinpoint a single catalyst for Tuesday's rally, news overnight that the GSA would ofﬁcially kick off the Presidential transition process likely diminishes some of the lingering political risk post-election, and several cabinet announcements from the President-elect's ofﬁce including the intention to nominate former Fed Chair Janet Yellen to the post of Treasury Secretary appeared to be well received by markets. Looking ahead, it will be a busy day for economic data on Wednesday with durable goods, personal income & spending, new home sales, revised 3Q GDP and the minutes from the November FOMC meeting all set to be released. Markets will be closed on Thursday in observance of Thanksgiving.
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.