The post-election day market rally rolled on this past week as optimism on vaccine progress overshadowed the continued rise in global Covid-19 cases and the resulting ramp in restrictions to contain the spread. For the week, the S&P 500 gained 2.2% while the Dow Jones surged 4.2% on its higher exposure to cyclical industries. However, not all equities participated in last week’s rally as the tech-heavy Nasdaq Composite fell -0.6% on the week, narrowing its year-to-date outperformance against the other two indices. It was the largest weekly outperformance of the Dow Jones over the Nasdaq since 2002, according to Dow Jones Market Data. The rotation out of high flying technology stocks that have been this year’s winners into more cyclical, value-oriented stocks got another shot in the arm in this week’s early trading following another positive coronavirus vaccine Phase 3 trial announcement, this time from Moderna. The biotech company’s interim Phase 3 data pointed to a 94.5% efficacy rate for its vaccine, another strong result following Pfizer and BioNTech’s 90% vaccine efficacy rate reported last week. The news comes as several states are ramping up social distancing restrictions as U.S. active Covid-19 cases surpassed 4 million over the weekend and over 1.1 million new cases were reported in the past 7 days nationwide.

 

The U.S. economic recovery overall has remained resilient to date, despite virus headwinds and political uncertainty, with recent data demonstrating sustained progress. Last week’s unemployment claims report showed continuing claims dropped to under 6.8 million from 7.2 million in the week before. However, some indicators have shown a deceleration in the positive momentum. On Friday, the initial reading of consumer sentiment for November from the University of Michigan fell to 77.0 from 81.8 in October, well below expectations, demonstrating a more cautious consumer in response to the rising wave of coronavirus cases and subsequent restrictions. October retail sales also fell short of expectations, although still positive, as sales grew 0.3% in October over the prior month, down from 1.6% growth in September and the consensus forecast of 0.5% growth. However, it is important to note that compared to the prior year October retail sales were still up a healthy 5.7%.

 

Vaccine optimism has boosted economic expectations in 2021 and thereafter, but there are concerns that the near-term economic picture could be turbulent, particularly as Congress remains at a stalemate on additional stimulus while many businesses are operating at limited capacity. According to an analysis conducted by the Wall Street Journal, approximately 300 companies, employing about 23,400 workers altogether, that received an estimated $500 million in pandemic-related loans from the Paycheck Protection Program have filed for bankruptcy after the money ran out and government assistance subsided. Market participants will be watching developments on stimulus closely to bridge the gap until a vaccine is widely available. There is potential that select relief measures could be paired with must-pass legislation to avoid a government shutdown in December, though election uncertainty has weighed on those prospects as Congress looks ahead to the run-off Senate elections in January.

 

In the week ahead, investors will get some important updates on the strength of the manufacturing sector as well as the red-hot housing market. Additionally, several large retailers are on the docket to report third quarter earnings as earnings season comes to a close. The reports will help shed more light on the strength of consumer spending ahead of the holiday season. 

 

Our team at First Merchants Private Wealth Advisors will continue to keep you apprised of market and economic developments and our thoughts in the weeks ahead, including a live online event on Tuesday, December 1st from 3 to 3:45 pm. You should have received a separate email invitation titled “Perspective from Private Wealth” with the call details, but please reach out to your advisor with any questions that you may have for joining the event.