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By Nicholas
Jasinski | Monday, November 30 Pause.
The past three Mondays have begun with
promising Covid-19 vaccine news, which set the tone for the trading
day and much of the week that followed. Stocks of the most economically
sensitive and in-person sensitive businesses led the market, while social-distancing
beneficiaries lagged. The prospect of a light at the end of the tunnel
outweighed any concerns about the current record surge in coronavirus cases
and hospitalizations in the U.S. and abroad. The S&P
500, Nasdaq
Composite, and Russell
2000 all ended last week at record highs,
with the Dow Jones Industrial
Average at its third-highest close ever. Breaking the
Vaccine Mondays streak, today didn't feature much of a short-term catalyst,
and stock market trading dynamics were reversed. Virus-resistant technology
and health-care stocks rose, while cyclical energy and financials
were the biggest losers. The S&P
500 closed the month of November with a 0.5% loss, the Dow fell 0.9%, and the
small-cap Russell 2000 dropped 1.9%. The Nasdaq slipped less than 0.1%. In other
asset classes, however, the risk-off trade was absent: the 10-year Treasury
yield ticked higher, and gold prices fell while copper rose. If the
pattern continues, it suggests that the cyclicals-driven stock rally may
be due for a bit of a breather, but that investors' long-term base case of a
return to normal on the horizon is still intact. "The
disconnect likely has to do with the fact that just about everyone seems to
be talking about overbought conditions and extreme sentiment," Evercore's Dennis
DeBusschere wrote to clients today. "And cyclicals
have had a MASSIVE move relative to Defensive." The Dow
surged nearly 12% in November, its largest one-month percentage gain since
January 1987. The Russell 2000 finished the month up more than 18%, its
best month on record. Some pause in the rally shouldn't be a surprise. DeBusschere
expects this Friday's November jobs report to be relatively weak, given
significantly less seasonal holiday hiring by retailers and other firms
this year. Thursday's jobless claims data could likewise paint a picture of a
slowing recovery. After a big run-up, a couple of so-so data points can make
a larger dent than usual. Here's
DeBusschere on the puts and takes investors are currently considering: Negative
market scenarios tend to be some variation on the following theme. Sentiment
is extended and consumer confidence has stalled recently. Relatively weak job
growth over the next two months will constrain confidence putting stocks at
risk for a sharp pull back. Though that
story sounds plausible on its own, it largely ignores longer term trends and
assumes near term data will exert a heavy influence on asset prices. Vaccine
sentiment is improving and strong drug trial efficacy results suggest
economic normalization in mid-’21. Housing remains a source of significant
strength in the U.S., the savings rate remains elevated, and inventories are
low at a time when implied real yields are negative. Put it all
together, and the long-term picture still shows many good reasons for stocks
to be higher a year from now than they are today. But just don't expect
December to repeat November's gains. |
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DJIA: -0.91% to 29,638.64 The Hot
Stock: Advanced Micro
Devices +6.3% Best Sector:
Technology +0.7% |
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