Weekly Market Commentary (November 09 – November 13)

 

Global Market Highlights

  • Stocks advance higher as a reaction to vaccine news

  • Market rotation after vaccine optimism

  • France extends lockdown, Germany could follow

  • More stimulus from the ECB

  • Japan may add a third stimulus package

US Markets

Most of the major benchmark indices in the US ended the week higher as positive vaccine news bolstered optimism. The Dow Jones Industrial Average performed the best out of all the indices, while the Nasdaq Composite index lagged. The energy sector recorded solid gains.

On Monday, futures were higher as the media announced that Joe Biden crossed 270 electoral votes, which was needed to win the presidency. Futures continued their rally after Pfizer announced that preliminary data showed that the COVID-19 vaccine that the company has been developing jointly with BioNTech was over 90% effective in preventing infections, which is a level well above expectations. Investors were also encouraged by news that the company can start rolling out the vaccines in limited quantities by the end of the year.

As the Pfizer news flooded the market, a sharp rally occurred  in cyclical stocks, mainly in travel and leisure companies. Bank shares and energy shares also benefited from the news. Conversely, investors started selling typical stay-at-home shares such as Netflix and Zoom.

For the second half of the week, the rally lost steam as the number of new pandemic cases and hospitalizations continued to rise significantly in most of the states. On Thursday, Chicago was considering reinstating stay-at-home orders and New York was also considering shutting down schools which worried investors. After the election, President Donald Trump refused to concede the election and said that the election was rigged. The president also issued an executive order banning U.S. investments in firms declared to have ties to the Chinese military.

The week was light with economic news as weekly jobless claims fell more than expected and reached a new low of 709,000, while continuing claims fell below 7 million for the first time since the beginning of the pandemic. The National Federation of Independent Business’s measure of small business sentiment surprised investors by remaining steady at pandemic highs, but the University of Michigan’s preliminary measure of consumer sentiment in November missed expectations and fell to a three-month low.

The major indices were mixed for the week as the Dow Jones Industrial Average gained 4.08%, the S&P 500 advanced 2.14%, while the Nasdaq Composite index shed 0.55%.

European Markets

Shares in Europe ended the week higher as markets rallied on encouraging news regarding the vaccines, even though the number of new cases are still rising. The European Stoxx Europe 600 index ended the week 5.13% higher, while in Germany the Dax 30 index advanced 4.8% and the Uk’s FTSE 100 rose 6.9%.

The French government stated that there would be no easing of the lockdown measures for the next two weeks as the number of new cases and hospitalizations kept on rising and reached the peak experienced during the first wave of the virus. Portugal extended the nightly curfew and weekend lockdown affecting more than 100 municipalities. Angela Merkel in Germany, said that the number of COVID-19 cases is still too high even if the increase started to slow. In the UK, which imposed a lockdown at the beginning of the month, the total number of coronavirus cases rose to 1.3 million after new infections increased to 33,470 on Thursday, a daily record.

The ECB held its annual symposium, where ECB President Christine Lagarde hinted that the bank would expand its emergency purchase program. She has also said that the PEPP and TLTRO programs have proven their effectiveness in the current environment and therefore were likely to remain in place.  Her comments appeared to rule out any further reduction in the ECB’s deposit rate, currently at -0.5%.

The UK economy grew by a slower-than-expected 1.1% in September, month-over-month data showed. Gross domestic product rebounded 15.5% in Q3, but failed to fully offset the almost 20% slump that occurred between April and June.

Asian Markets

Asian markets were mixed for the week as the Japanese Nikkei 225 index gained 4.4%, while in China, the Shanghai Composite Index lost 0.1% and the CSI 300 index ended the week 0.6% lower.

More than 30% of the listed Japanese companies with fiscal years ending in March have increased their forecasts for full-year earnings, when they reported their first-half results. However, the full-year net profit forecast for these companies is still widely expected to be about one-third lower than in fiscal 2019, due to the impact of the coronavirus and the effects of the social distancing mandates. According to research, 32% of Japan’s listed companies that made profit forecasts before the September quarter ended up revising their earnings higher. While concerns linger about the effect of the growing wave of coronavirus infections, the positive trend was led by manufacturers that market their products globally, especially auto-related manufacturers. Thanks to work-from-home/stay-at-home demand and China’s rapid recovery, about 60% of the companies that raised their earnings forecast were manufacturers. Within the services sector, which includes road and rail operators and airlines, many companies expect a worst-ever fiscal year earnings shortfall.

In an effort to boost Japan’s economy, Japanese Prime Minister Yoshihide Suga asked his cabinet to provide a proposal for a third stimulus package. Economy Minister Yasutoshi Nishimura said that the size of the extra budget has not been determined and that lawmakers have lobbied for as much as USD 286 billion, although many believed that the stimulus would be closer to USD 95 billion. Nishimura said that the aid package would be targeted at structural changes to the economy and increased productivity with an eye on government spending that would attract private investment rather than direct payments to households. Some economists worry about the impact of the additional spending on the country’s public debt load, which is already twice the size of Japan’s USD 4.6 trillion economy.

Earlier in the week, Chinese equity investors received unwelcome news after the government released a draft of antitrust guidelines aimed at curbing the power of the country’s leading internet-based platforms. The proposed antitrust laws from the State Administration for Market Regulation were the second recent setback for China’s top internet companies after financial regulators abruptly pulled the IPO of fintech company Ant Group on November 3. The uptick in regulatory actions affecting China’s online companies comes as authorities worldwide have raised concerns over the power and influence of digital platforms and their anticompetitive practices, though China is the first to issue new rules for its internet industry.