Things That Make You Go Hmmm…
By: George Boyan
Equity markets are once again making new all-time highs just as the first COVID vaccines are being administered in the United States. Fixed income yields remain extraordinarily low with a commitment from the Fed for extremely accommodative policy for the foreseeable future. The DJIA is now +5% YTD, versus the SPX +13.5%, and the NASDAQ +39%, despite 6.7% unemployment and a record number of small business closures in 2020. Are we priced for perfection or can this melt up continue?
Furthermore, the old adage says that a rising tide lifts all boats—but should this apply to individual stocks? We aren’t so sure. It is rare to see rallies among recovery stocks, including the hotels, cruise lines, and airlines, as well as the stay-at-home stocks like video communication, cybersecurity and home-gym companies. Can they both win?
While we certainly have our views on these and a variety of other issues, these questions highlight the reason why maintaining a well-diversified portfolio that matches your investment objectives, and the patience to stay the course, are the most important aspects of investing.
By: Ariel Segal
The FDA authorized Pfizer’s Covid-19 vaccine for emergency use on Friday. The first non-trial vaccine in NY state was administered to a critical care nurse that works in Queens, NYC. The U.S. is now the third developed Western country after the UK and Canada to have approved a vaccine.
Initial jobless claims jumped to a 3-month high last week, driven by business shutdowns. Continuing claims increased by 230,000, the first increase since August.
A potential federal spending bill is planned to be released as early as Tuesday. A Covid-19 stimulus package with $908 billion in assistance could also be attached to the bill. After President Trump signed a one-week spending bill extension, federal spending is set to run out on December 18th.
Michel Barnier, the EU’s chief negotiator, told a group of ambassadors that a trade deal with the U.K. could be completed as soon as this week. Negotiations concerning fisheries remain a staunch road block.
Fixed Income Market:
By: Allon Harris
High Yield bonds keep hitting new records while Investment Grade bonds are flat to slightly wider over the week.
High Yield bond yields decreased by 8bps over the past week to 4.98%, which is below the prior record low of 5.03% set in May 2013!
The primary driver behind this move (and I dare to say all financial markets in the U.S. this week) was the COVID-19 vaccine related news and hopes for bipartisan support of a relief bill.
IG spreads widened by 2bps over the week, with Technology widening by 3.5bps while energy tightened by 2bps. I would view this move as more of a correction and remember that IG spreads are still very close to historically tight levels.
In the New-Issue market we expect the usual late December slowdown but in the meantime the market is till red-hot and financial companies are taking advantage. They have been a staggering 75% of Decembers new issue volume.
Lipper fund flow this week was positive for IG, HY and U.S. government funds.
IG inflow fell to $2.9bln from $4.8bln last week.
HY went from outflow last week to a slight inflow this week.
U.S. Government swung to inflows of $1bln this week from outflows of $107bln last week
By: James Zurovchak
The equity markets continued to wrestle with three related themes: the continued COVID-19 surge, the stimulus package talks, and the vaccine rollout, both timing and amount that will be available. The coming days should add clarity to the vaccine questions as Pfizer first shipments went out this past weekend. Last week all three major indices made all-time highs but retreated from those at the end of the week to close slightly down with S&P off .9%, NASDAQ down .7% and DJI lower by .5%. Only 2 of 11 GICS sectors were up on the week with Energy (+1.2%), once again, leading the way and Communication services (+.6%) next in line. Technology (-3.1%) was the biggest loser followed by Real Estate (-2.5%) and Financials (-1.8%). Value and Growth were roughly in line at -.7% vs -.8%. Small Caps continued their outperformance gaining 1.2% on the week, bringing their gains to 27% QTD, 3 times the DJI and S&P in that span.
By: Anthony Minardo
As we approach the end of a very extraordinary year filled with historical events, including the U.S. presidential elections and a global pandemic, the US dollar remains weak.
The FED will conduct the final FOMC meeting of the year on Wednesday. The USD has the potential to slide further if the FED’s decision is to add additional easing in some form. Historically the USD gets sold by US companies in December, with inflows in January due to
taxation issues. We expect the USD to continue its trend lower over the final weeks of the year due to year-end flows.
The EU-UK negotiations continue, but have appeared to reach a stalemate. There still remains a slight chance of an agreement by the December 31, 2020 deadline.
By: Brian Stigliano
Since some sectors of the market have still not recovered from the COVID-19 induced selloff in February and March, there may be an opportunity to implement a strategy known as tax-loss harvesting as we head into year end. The strategy consists of selling a security at a loss and replacing it with a similar security to preserve the portfolio’s asset allocation. The capital loss allows you to offset capital gains that you may have from transactions earlier in the year (or that have yet to take place this year), thus lowering your capital gains tax liability. Additionally, the purchase of the similar security allows you to capture any growth that you could have otherwise lost by being out of the market. One element that is key to this strategy’s success is avoiding the IRS’s wash-sale rule. The wash-sale rule is triggered when you sell a security at a loss and purchase one that is “substantially identical” within 30 days before or after the sale date. Some common strategies to avoid the wash-sale rule are selling a stock and buying an ETF that tracks the same sector/industry, selling an actively managed fund and buying an index fund, or selling an index fund and buying an actively managed fund.
Last Week's Economic Data for 12/14
|Last Week's Economic Data||Actual||Survey|
|Wholesale Inventories MoM||1.1%||0.9%|
|Initial Jobless Claims||853k||725k|
|PPI Final Demand MoM||0.1%||0.1%|
This Week's Economic Data for 12/14
|This Week's Economic Data||Release Date||Survey|
|Retail Sales Advance MoM||12/16/20||-0.3%|
|FOMC Rate Decision (Upper Bound)||12/16/20||0.25%|
|Initial Jobless Claims||12/17/20||815k|
Market Data for 12/14
|1 Month Libor||0.15%||+0.7 bp||+1.7 bp||(158.4 bp)|
|3 Month Libor||0.22%||(1.1 bp)||(0.3 bp)||(168.0 bp)|
|6 Month Libor||0.25%||(0.6 bp)||+0.1 bp||(165.6 bp)|
|12 Month Libor||0.33%||(0.3 bp)||(0.5 bp)||(162.9 bp)|
|Fed Funds Effective||0.09%||(146.0 bp)|
|SOFR||0.08%||(0.0 bp)||(2.0 bp)||(146.0 bp)|
|US Treasury Yields||Current||WoW||MoM||YoY|
|12-Month||0.08%||(1.8 bp)||(3.6 bp)||(143.5 bp)|
|2-Year||0.12%||(2.6 bp)||(6.4 bp)||(148.9 bp)|
|3-Year||0.17%||(2.7 bp)||(6.5 bp)||(145.0 bp)|
|5-Year||0.36%||(2.9 bp)||(4.9 bp)||(129.6 bp)|
|7-Year||0.62%||(3.4 bp)||(2.9 bp)||(113.6 bp)|
|10-Year||0.89%||(2.6 bp)||(6.4 bp)||(148.9 bp)|
|30-Year||1.63%||(2.6 bp)||(6.4 bp)||(148.9 bp)|
|US Swap Rates vs 3ML||Current||WoW||MoM||YoY|
|12-Month||0.18%||(2.5 bp)||(3.5 bp)||(158.1 bp)|
|2-Year||0.20%||(2.9 bp)||(6.7 bp)||(148.2 bp)|
|3-Year||0.24%||(2.8 bp)||(7.3 bp)||(142.4 bp)|
|5-Year||0.42%||(2.9 bp)||(5.0 bp)||(126.7 bp)|
|7-Year||0.64%||(3.0 bp)||(2.8 bp)||(109.9 bp)|
|10-Year||0.90%||(3.1 bp)||(0.8 bp)||(92.0 bp)|
|30-Year||1.36%||(4.0 bp)||+1.9 bp||(63.4 bp)|
|US Swap Spreads||Current||WoW||MoM||YoY|
|12-Month||+10 bp||(0.7 bp)||+0.1 bp||(14.6 bp)|
|2-Year||+8 bp||(0.3 bp)||(0.3 bp)||+0.7 bp|
|3-Year||+7 bp||(0.1 bp)||(0.8 bp)||+2.7 bp|
|5-Year||+6 bp||+0.0 bp||(0.1 bp)||+2.8 bp|
|7-Year||+1 bp||+0.5 bp||+0.1 bp||+3.8 bp|
|10-Year||+1 bp||(0.5 bp)||+5.6 bp||+56.9 bp|
|30-Year||(27 bp)||(1.4 bp)||+8.3 bp||+85.5 bp|
|Dow Jones||29,991||(0.2 %)||+1.7%||+6.6%|
|British Pound||1.3326||(0.4 %)||+1.0%||(0.0 %)|
|Israeli Shekel||3.2571||(0.1 %)||+3.2%||+7.4%|
|Gold||1,826||(2.0 %)||(3.3 %)||+23.7%|
|Silver||24||(2.6 %)||(3.3 %)||+40.9%|
|Crude Oil||47||+2.6%||+16.9%||(21.9 %)|
Source: Bloomberg L.P.
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