U.S. equities pulled back from their highs last week, taking a breather from the strong market rally in the wake of Election Day and positive Covid-19 vaccine progress, as investors assessed near-term headwinds from the escalating coronavirus case
count and subsequent restrictions. For the week, the S&P 500 and Dow Jones each slid -0.7%, while the Nasdaq Composite fell -0.4%. Cyclical sectors, including energy, industrials, and materials, were broadly positive on the week and have continued
to gain traction as economic growth expectations have been revised upward in response to a series of encouraging vaccine announcements. Meanwhile, select commodity prices have also shown some momentum on increasing demand forecasts. Last week,
U.S. crude oil prices climbed 5.6% and industrial metals also posted nice gains with copper rising 3.7%., while precious metals, like gold and silver, fell lower due to more limited industrial applications and their view as safe haven assets.
For a third Monday in a row, markets have opened the week to an upbeat vaccine development as AstraZeneca announced a 70% average efficacy rate for its vaccine candidate that it developed alongside the University of Oxford. Although lower than the efficacy
rates of around 95% announced by Pfizer/BioNTech and Moderna, AstraZeneca’s vaccine efficacy did increase to 90% when administered as a half dose followed by a full dose over a month apart (as opposed to two full doses) and it did note several
other advantages, including lower logistical hurdles as the vaccine can be stored in a refrigerator rather than a freezer, as required by the other two vaccines.
On the economic front, low interest rates continue to fuel a red hot housing market as housing starts increased 4.9% month-over-month in October and September’s growth was revised up to 6.3% from 1.9% as originally reported. The strength of the
housing market not only directly feeds into U.S. GDP growth through rising private investment, but it also contributes to economic growth in several other indirect ways as well. For example, the mortgage refinancing boom that’s currently underway,
in which an estimated $2.5-$2.7 trillion of debt has been refinanced this year alone, has generated tens of billions of savings on mortgage interest payments. These savings have in turn flowed into other discretionary purchases such as furniture,
appliances, and other home improvement items.
While monetary and fiscal policy remain broadly accommodative, the outlook for additional stimulus support remains mixed. Last week, the U.S. Treasury Department requested that the Federal Reserve wind down several emergency lending programs created to
ease credit market turmoil in March and return $455 billion in unused funds meant to backstop the programs at the end of this year so that Congress can reauthorize the funds to be spent on other fiscal aid. At the moment, Congress remains at a stalemate
in coming to an agreement for another round of stimulus to aid struggling service businesses, municipalities, and unemployed citizens, and it is increasingly unlikely that an agreement will be achieved ahead of the Georgia run-off elections in January
that will determine control of the Senate.
In the holiday-shortened trading week ahead, market participants will get a host of economic updates regarding third quarter GDP growth, durable goods orders, and inflation. Additionally, they will continue to monitor holiday consumption spending in one
of the busiest retail sales stretches of the year. Black Friday won’t be the same this year, with many retailers starting holiday sales earlier and encouraging shoppers to buy online.
For additional perspectives on the markets and financial planning as we close in on year end and look ahead to 2021, we welcome you to join a live online event that we are hosting 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.
From everyone at First Merchants Private Wealth Advisors, we wish a happy and safe Thanksgiving Day to you and yours.