Inch by inch. Stocks rallied on Friday as Congress inched closer yet to a potential stimulus package. Jobs data for last month missed the mark, but traders hope the news will give lawmakers more of an incentive to get a bill passed sooner than later.
N O T E W O R T H Y
What bad news? On Friday, stocks seemed unflappable… well not just Friday but the whole week. Despite some minor pullbacks, stocks ended higher for a second straight week in a row. This, as COVID cases are seeing record growth across the country. Sure, vaccines are closer on the horizon but experts expect that broad availability of the vaccine won’t be available until the second half of 2021. In that best-case scenario, one can hope that things will start to get back to normal by this time next year. But what can we expect in the interim? Those same experts have been warning about this latest virus surge and increased death tally and the numbers have not yet even factored in the expected rise resulting from Thanksgiving get-togethers. Regardless of whether it is a first, second, or third wave - or whatever, we are unarguably experiencing a surge. As a result, many fresh restrictions have been put in place by state and local governments which have begun to take a toll on many war-torn businesses, just barely surviving. On Friday, the Bureau of Labor Statistics released its monthly labor report. Economists were expecting a slowdown from October's +638k growth, something to the tune of +460k, and the number surprised significantly on the downside, showing that only +245k new jobs were created. In fact, some sectors lost jobs. The Unemployment Rate ticked down slightly to 6.7% from 6.9%. Unfortunately, the fall was not due to more unemployed getting jobs but rather less folks seeking jobs, principally owing to frustrated job-seekers giving up on their searches. While the released numbers reflect November’s employment situation, the survey took place several weeks ago and did not likely factor in the recent new wave of business restrictions. Looking at the details of the release, we note job losses in Accommodation/Food/Drinking Service (AKA Restaurants and Bars), Retailers, and the Government. Areas of the economy which saw growth were Transportation/Warehousing, Professional/Business Services, Construction, and Leisure/Hospitality. That is consistent with what we would expect with job losses occurring in hard-hit retail and food services while gains are happening in trucking and warehousing with more and more relying on online retail. Air transportation added jobs as more and more travelers take to the skies again, though air travel is still a fraction of where it was prior to the outbreak. The days are getting colder which will further strain restaurants and bars that have relied on outdoor dining to make ends meet. Further, indoor dining restrictions are on the increase with this latest surge in virus cases. With the predicted virus case increases on the horizon, one would expect these recent employment trends to continue through the Winter or until a vaccine could be widely distributed. Though the economic numbers appear to be discouraging, investors are upbeat on news that congressional leaders appear to be moving closer to a Coronavirus relief package. That optimism was, in part, responsible for Friday’s gains. In fact, many traders are hopeful that a slowdown in the labor market recovery would further spur lawmakers to act soon. Yes, it was a case of “bad is good”. Remember that theme, which dominated the markets throughout 2019. The “bad” of late 2018 and through 2019 helped propel stocks to an almost +29% gain last year. As of Friday, the S&P500 is up by +14.5% year to date, and +17.6% higher than it was this time last year. With nearly 17 trading days left in 2020, the jury is still out on how this year's "horribly bad” will go down in the books… for stocks, that is.
THE MARKETS
Stocks got a boost on Friday from lawmakers apparent, newfound willingness to work in earnest on passing a COVID relief package. Stimulus optimism overshadowed a surprisingly weak monthly employment number, which missed economist expectations. The S&P500 rose by +0.88%, the Dow Jones Industrial Average advanced by +0.83%, the Russell 2000 Index climbed by +2.37%, and the Nasdaq Composite Index added +0.70%. Bonds slipped and 10-year treasury yields climbed by +6 basis points to 0.96%. Crude oil added +1.36% as OPEC+ slowed its production increases due to take effect next month, prompting a rise in the Energy Sector, which rose by +5.43%.
NXT UP
- Today, it is all quiet on the economic front, but later this week we will get JOLTS Job Openings, CPI, PPI, and University of Michigan Sentiment. While earnings season has wound down, we will get results from some important companies. Please refer to the attached economic and earnings release calendars for details.