Last week, vaccine optimism immunized investors against signs of economic weakness.
In previous commentaries, we have written about narrative economics, which holds that popular stories may affect individual and collective economic behavior. Last week, diverse narratives had the potential to influence consumer and investor behavior but not all did. You may have read that:
Coronavirus anxiety is high. “Figures from recent days suggest infections may have fallen off from record highs in some states. But no one is cheering in the emergency wards. Health workers fear that Thanksgiving gatherings will prove to be super-spreader events… Meanwhile, many college students have just gone home for the year… [A medical professional said], ‘It is like slow-motion horror show. We’re just standing there and being run over,’” reported The Economist.
Unemployment claims moved higher. “The number of Americans filing first-time claims for jobless benefits increased further last week. This suggests an explosion in new COVID-19 infections. The subsequent business restrictions are potentially boosting layoffs and undermining the labor market recovery,” reported Lucia Mutikani of Reuters.
Economic stimulus is needed. “As it stands, tens of millions are already struggling to make rent payments and put food on the table. The $1,200 stimulus checks sent out by the government in the spring have long run dry and 12 million Americans are set to lose unemployment insurance the day after Christmas if Congress does not act,” reported Jacqueline Alemany of The Washington Post.
Vaccines are on the way. “As G20 leaders pledged to ensure the equitable distribution of COVID-19 vaccines, drugs and tests so that poorer countries are not left out, the United States, United Kingdom, and Germany each announced plans to begin vaccinations in their countries in December…,” reported Helen Sullivan of The Guardian.
Fiscal and monetary policy will reinvigorate the economy. “Surely the market strength reflects the fact that, barring [vaccine] rollout disasters, we should have our normal lives back within months…Now add in the widely held assumption that the expected new Treasury secretary Janet Yellen will deliver the additional stimulus she has called for… and the newish Federal Reserve rhetoric holds that interest rates need to stay low…Suddenly it makes perfect sense to think that pent up demand and possible productivity gains created by the crisis could help set off what Goldman Sachs calls the Roaring 20s Redux,” wrote Merryn Somerset Webb for Financial Times.
The optimistic stories, including the potential for vaccines to restore ‘normality’ and the possibility of new stimulus measures helped drive markets higher last week. Global stock markets rose and were positioned to deliver their best monthly performance ever, reported Camilla Hodgson of Financial Times.
In the United States, the Dow Jones Industrial Average moved above 30,000 before retreating. The Standard & Poor’s 500 and Nasdaq Composite Indices both finished the week at record highs, reported Ben Levisohn of Barron’s.
Data as of 11/27/20
Standard & Poor's 500 (Domestic Stocks)
Dow Jones Global ex-U.S.
10-year Treasury Note (Yield Only)
Gold (per ounce)
Bloomberg Commodity Index
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
AND THEY'RE OFF! Holiday shoppers may not have been racing into brick-and-mortar retail stores but that does not mean they weren’t shopping. According to the National Retail Federation, many consumers have earmarked about $998 for spending on winter holidays, which include Christmas, Hanukkah and Kwanzaa. They plan to spend:
- Slightly less on gifts for family, friends and coworkers than they did last year
- Slightly more on food and decorations
- Significantly less on non-gift spending (buying that special something for yourself because the price is so attractive)
A lot of that money will be spent online. On Black Friday, U.S. consumers shelled out more than $9 billion online, reported TechCrunch. It was the second biggest day for digital commerce in history. The first was Cyber Monday 2019.
Overall, online holiday sales are expected to break all previous growth records. A report from Adobe estimated 2020 digital sales will be up 20 to 47 percent year-over-year. The broad range is due to much uncertainty about levels of disposable income and capacity limits for brick-and-mortar stores. The report stated:
“If flu season brings with it a spike in [coronavirus] cases and an increase in store restrictions, a reduced store capacity will drive more people online. E-commerce is still only around one out of every $4 spent on retail. That’s a large bucket of dollars that could move online, leading to potential for big swings this season.”
Whether you are holiday shopping in person or online, or using a smartphone or computer, watching trends may help investors identify new investment opportunities.
Weekly Focus – Think About It
“As we struggle with shopping lists and invitations, compounded by December’s bad weather, it is good to be reminded that there are people in our lives who are worth this aggravation, and people to whom we are worth the same.”
--Donald E. Westlake, Crime fiction writer
Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Treiberg Wealth Management, a registered investment advisor and separate entity from LPL Financial. The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market. Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association. The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998. The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones. Yahoo! Finance is the source for any reference to the performance of an index between two specific periods. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. This newsletter was prepared by PEAK. Past performance.