Value stocks have been particularly sensitive to vaccine expectations, demonstrating a stronger relationship than the S&P 500 Index and pro-cyclical equities like small caps. In part, this may be because stocks with lower valuations are more likely to have business models most directly harmed by the pandemic. In our view, prospects of a vaccine present a tactical opportunity for value in a strategic environment for growth.
Global equities soared last Monday after news of a breakthrough in the search for a COVID-19 vaccine, but were tempered during the week as cases hit new highs and uncertainties arose around the realities of future vaccine deployment. In the US, the S&P 500 ended up 2.21% despite increased lockdown measures and some continued political noise following the previous week’s election. European equities also rose, with the Eurostoxx 600 and FTSE 100 gaining 5.16% and 7.04%, respectively. Read More
Vaccine progress pushed oil prices up last week, although hopes for a demand boost were quickly moderated by continued restrictions in the nearer term. Supply-side factors also pressured prices as US crude inventories rose by 4.3m barrels (bbl), exceeding expectations of a fall. Even so, WTI and Brent crude oil ended the week higher at $40.13 and $42.78 per bbl, respectively. Read More
The prospect of a highly effective COVID-19 vaccine sparked investors’ rotation out of safe havens and into cyclical risk assets. The 10-year yields on the US Treasury and UK Gilt rose sharply to 0.97% and 0.42% mid-week, respectively. Although investor optimism abated later in the week following new highs in daily US COVID-19 infections, the US Treasury yield curve steepened and the 10-year yield settled 7 basis points higher on the back of strong nonfarm payroll data. In our view, continued accommodative central bank policies may limit further yield normalization. Read More
The US dollar strengthened 0.65% against a basket of major currencies this past week, largely driven by a weaker euro. However, we believe its performance will likely remain tethered to developments in vaccine news, economic recovery, COVID-19 containment, and progress in fiscal stimulus negotiations. Read More
US initial jobless claims fell to 709k for the week ending November 6, lower than consensus expectations and the fourth consecutive week of declines. However, claims remained above the pre-pandemic record of 695k in 1982. Continuing claims for the week ending October 31 fell to 6.79m, declining 436k from the prior week. Despite those improvements, the Job Openings and Labor Turnover Survey (JOLTS) for September showed little change in job openings at 6.4m, below expectations, and a decline in hiring to 5.9m due to a decrease in temporary federal government hires after the 2020 census. Read More
In the UK, third quarter GDP rose by 15.5% quarter-over-quarter non-annualized, the sharpest quarterly expansion on record. That said, GDP is still 9.7% below pre-COVID levels and the pace of recovery is expected to slow following the UK’s second lockdown that came into effect in early November. Read More
US CPI was unchanged in October, below expectations and slower than September’s +0.2% gain. Core CPI, which excludes food and energy costs, was also unchanged month-over-month. In China, a drop in pork prices slowed CPI to +0.5% year-over-year, its slowest pace in 11 years. Read More
For style performance, Large, Mid, and Small refer to the Russell 1000, Russell Midcap, and Russell 2000 indices, respectively. Value refers to companies with lower price-to-book ratios and lower expected growth values, and Growth refers to higher price-to-book ratios and higher forecasted growth values. Government, Corporate, and High Yield refer to the US Treasury index, the US Corporate Credit index, and the US High Yield index, respectively. Short, Intermediate, and Long refer to the Short, Intermediate, and Long segments of their respective curves. Quality returns refers to the credit quality of asset classes ranging from Government, highest quality, to High Yield, lowest quality.
US Industrial Prod. (Cons: 1.0%, Prior: -0.6%)
UK CPI YoY (Cons: 0.5%, Prior: 0.5%)
US Jobless Claims (Cons: 700k, Prior: 709k)
Philly Fed Survey (Cons: 22.0, Prior: 32.3)
Japan Core CPI (Cons: -0.7%, Prior: -0.3%)
“Euro PMI” refers to the Markit Eurozone Composite Purchasing Managers’ Index. “Cons. Conf.” refers to US Consumer Confidence. “GE IFO Business” refers to the German Ifo Business Climate Survey. “New Home Sales” refers to US New Home Sales (MoM). “Dur. Gd. Ord.” refers to US Durable Goods Orders. “UK GDP” refers to the QoQ estimate of the United Kingdom’s Gross Domestic Product for Q3. “Euro M3” refers to the YoY change in the Eurozone’s M3 Money Stock. “US GDP” refers to the estimate of US Gross Domestic Product for Q3. “Pers. Cons.” refers to US Personal Consumption. “UMich Cons. Sent.” refers to the University of Michigan Consumer Sentiment Index. “Japan Core-Core CPI” refers to Japan’s Consumer Price Index (ex- Food, Energy YoY).
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