Nap Time

Nap time.  Stocks took a pause yesterday after racking in a month of record returns.  A weak housing number and a missed PMI added to the negative sentiment in the session.

 

N O T E W O R T H Y

 

Don’t look down.  Now that November is officially in the books we can say “wow, that was a month”.  And it was, with the Dow achieving its largest monthly gain since January of 1987.  It was also a record November with both the Dow and S&P logging the largest November gains since 1928.  I was there for the ’87 rally, but not the ’28 one.  The small-cap Russell 2000 Index, one of my favorite overall market indicators, rose by +18.29%, its largest monthly gain on record. The record rise in small cap stocks was part of a shift into economically sensitive stocks resulting from a surge in optimism about the economy… next year sometime…hopefully…fingers crossed.  Vaccines are on the way and we will have some fresh faces in Washington DC… hopefully they will manage to outperform their predecessors and pass some meaningful legislation. Another big theme from November was the rotation from growth stocks into value stocks, which saw its largest shift on record.  We spent the 7 months leading up to November hearing about how tech stocks and growth stocks were extremely over-valued.  The Wall Street term of art for that is: frothy.  Well, by yesterday, it was the value stocks that started to look frothy and investors decided to take some profits off the table.  The energy sector was on track to log its best month on record until yesterday’s pullback which was sparked by a wishy-washy OPEC+ meeting. The sector still managed a +26.57%  gain (its second best month on record) for November, but it is still -29.88% in the red for the year.  All of that November optimism put pressure on Gold, which experienced a -5.42% pullback.  The pressure on the foul weather hedge was accentuated by Congress’ inability to pass a spending bill, which would likely have propped up the metal.  Speaking of metal, Copper futures surged by +12.24% last month, which is another sign of optimism.  The industrial metal is critical in many of the high-tech things that we buy these days and demand for it is somewhat correlated to growth in manufacturing.  Yesterday, I caught a glimpse of a television on the trading floor and noticed that bitcoin had once again been added to the numbers that perpetually scroll across the bottom of the screen.  Why?  Well, maybe because is has more than doubled in price since June.  In fact, the cryptocurrency started the year at $7,158 and surged to $19,378 yesterday… that’s around +170% growth.  The surge is the result of its being more broadly accepted as a currency hedge by traditional money manegers. Additionally, more mainstream companies have begun to offer bitcoin-oriented features.  But wait, before you get too excited, bitcoin is still highly speculative and volatile.  After topping $18k two weeks ago, it fell by -10% in just three days… before rushing to a new high in a +13.37% rise over the weekend and yesterday. Completely mainstreamed: not yet, worth noting: certainly.  The Senate has started the pre-pre-debate on stimulus with some posturing at the podium, which I suppose is better than name calling and finger pointing.  On Friday, we will see if last month’s employment was in synch with the stock market’s optimism. Today and tomorrow, Fed Chairman Jerome Powell will speak to lawmakers on Capitol Hill where he is likely to paint a less-than-rosy picture of the economy and urge them to pass a meaningful fiscal stimulus plan.  So, we enter December with lots of moving parts and some new themes emerging… but you knew that already.

 

 

THE MARKETS

 

Stocks traded off yesterday as investors took profits, rebalanced portfolios, and took note of weaker economic numbers.  The S&P500 slipped by -0.56%, the Dow Jones Industrial Average fell by -0.91%, the Russell 2000 Index dropped by -1.91%, and the Nasdaq Composite Index gave up -0.06%.  Bonds climbed and 10-year treasury yields were unchanged at 0.83%.

 

NXT UP

 

– Markit Manufacturing PMI (Nov) is expected to be 56.7, in line with prior estimates.

– ISM Manufacturing PMI (Nov) may show a month over month drop to 58.0 from 59.3.

– Construction Spending (Oct) is expected to have grown by +0.8% compared to September’s +0.3% climb.

– Ward’s Total Vehicle Sales (Nov) may come in at 16.1 million, down slightly from last month’s 16.21 vehicles.

– In addition to Chairman Powell’s Senate testimony, we will hear from Fed Governors Brainard, Daly, and Evans.

 

 

daily chartbook 2020-12-01