Schwab Market Update | November 27, 2020

Schwab Market Update

U.S. Stocks Wrap Up Shortened Session and Week Higher

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U.S. stocks closed higher to end an abbreviated trading session and also extended a solid rally to close out the holiday shortened week. The markets’ grind higher was supported by the clarity offered from President-elect Joe Biden's administration taking shape, and even more so by the optimism surrounding multiple potentially effective COVID-19 vaccines. Economic and equity news was light. Treasury yields dipped as bond prices ticked higher, and the U.S. dollar slipped. Gold dropped and crude oil prices were mixed but still notched a fourth-straight weekly gain. Asia finished mixed, though China rallied on a stronger-than-expected read on industrial profits, and Europe was higher as the U.S. markets came back on line.

The Dow Jones Industrial Average rose 38 points (0.1%) to 29,910, the S&P 500 Index was up 9 points (0.2%) at 3,638, and the Nasdaq Composite advanced 111 points (0.9%) to 12,206. In light volume, 530 million shares were traded on the NYSE and 3.3 billion shares changed hands on the Nasdaq. WTI crude oil was $0.26 lower at $45.45 per barrel and wholesale gasoline lost $0.01 to $1.26 per gallon. Elsewhere, the Bloomberg gold spot price fell $27.74 to $1,788.06 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—decreased 0.2% to 91.80. Markets were up for the week, as the DJIA and the S&P 500 advanced 2.2%, and the Nasdaq Composite increased 3.0%.

The Dow Jones Industrial Average rose 38 points (0.1%) to 29,910, the S&P 500 Index was up 9 points (0.2%) at 3,638, and the Nasdaq Composite advanced 111 points (0.9%) to 12,206. In light volume, 530 million shares were traded on the NYSE and 3.3 billion shares changed hands on the Nasdaq. WTI crude oil was $0.26 lower at $45.45 per barrel and wholesale gasoline lost $0.01 to $1.26 per gallon. Elsewhere, the Bloomberg gold spot price fell $27.74 to $1,788.06 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—decreased 0.2% to 91.80. Markets were up for the week, as the DJIA and the S&P 500 advanced 2.2%, and the Nasdaq Composite increased 3.0%.

U.S. stocks extended a weekly gain that saw a return to record highs for the markets, including the Dow breaching the 30,000 mark for the first time. Much needed clarity on President-elect Joe Biden’s administration, along with persistent optimism regarding the distribution of the multiple potential effective COVID-19 vaccines have fueled the rally. These factors also helped the markets stomach the likelihood of further disruption in near-term economic activity as the resurgence of new virus cases in the world’s largest economy of the U.S. and in Europe has prompted the reinstatement of some restrictions on activity.

As such, the market leadership has showed signs of rotation into stocks that are economically-sensitive and have underperformed during the stay-at-home standard of living that the pandemic ushered in. For the week, Energy and Financials have noticeably rallied to lead the way, followed by Consumer Discretionary, Industrials and Materials issues.

Amid this backdrop, we have made some tactical changes, including closing out our overweight large cap/underweight small cap recommendation for U.S. stocks as discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her article, Changes: Vaccine News Changing Market's Leadership Characteristics?. Moreover, we maintained our outperform rating on the Financials sector and upgraded the Health Care sector to outperform, while downgrading the Consumer Staples sector to underperform and holding onto our underperform rating for the Utilities sector as noted in Managing Director and Senior Investment Strategist, David Kastner's, CFA, latest Schwab Sector Views: Election, Vaccine News Change the Picture.

For other timely strategies on how to navigate the volatile market conditions, check out our Market Insights page on www.schwab.com, and follow us on Twitter at @SchwabResearch.

Treasury yields trimmed a weekly gain amid a shortened session to close out the week

Treasuries were higher as the yield on the 2-year note ticked 1 basis point (bp) lower to 0.15%, the yield on the 10-year note decreased 4 bps to 0.84%, and the yield on the 30-year bond declined 5 bps to 1.58%.

This week bond yields have nudged higher as the vaccine optimism and political clarity has bolstered expectations for a potentially faster economic recovery in 2021, while a host of economic data has remained positive, but showed some signs of deceleration. Markit’s Manufacturing and Services PMIs for November both showed growth accelerated, durable goods orders and personal spending figures for October came in stronger than expected, and housing sales remained robust. However, consumer sentiment reports for this month fell more than expected, due to drops in expectations of business activity in the next six months, last week's jobless claims data reported on Wednesday accelerated and remained painfully elevated, and last month’s personal income declined.

The U.S. Dollar Index slid to a two-year low, gold prices fell for a third-straight week, and crude oil prices continued to rally for a fourth week.

Schwab's Chief Fixed Income Strategist Kathy Jones notes in her latest 2021 Fixed Income Outlook: Calmer Waters, how we see the potential for 10-year Treasury bond yields to trade in a range of 1% to as high as 1.6% in 2021, reflecting the prospects for real economic growth to recover at a faster pace. 

Please note: all U.S. markets traded in an abbreviated session today to close out the Thanksgiving holiday-shortened week.

Next week will get back to normal, with the economic docket full, delivering November Manufacturing and Services PMIs from the Institute for Supply Management (ISM) and Markit, the Fed's Beige Book—an anecdotal look at business activity across the nation's Fed districts in preparation for the next two-day FOMC monetary policy meeting set to end December 16th—along with initial jobless claims for the week ended November 28th. Also, we will get the October trade balance and factory orders reports. However, the headlining data point for the week will likely be Friday's November nonfarm payroll report. Moreover, Federal Reserve Chairman Jerome Powell is expected to conduct his two-day congressional monetary policy testimony.

As noted in the latest Schwab Market Perspective: Vaccine News Improves Outlook, encouraging vaccine news has raised hopes for a quicker pace of economic recovery. Although some COVID-19-related restrictions have been reinstated around the globe, they may have less of an overall economic impact than the spring lockdowns. However, no matter what the market is doing, we always suggest being prepared for future unexpected events. Holding a well-diversified portfolio may buffer short-term market moves—that means making sure you have an appropriate mix of investments, including international as well as U.S. stocks, fixed income securities, and a healthy equity sector mix.

Asia mixed and Europe higher

European equities traded higher, as the U.S. markets returned from yesterday’s holiday break, though they traded in a shortened-session to close out the week. The Energy sector continued to find demand, amid the backdrop of lingering COVID-19 vaccine optimism, while economic data in the region was mostly positive. French Q3 GDP growth was revised to a stronger quarter-over-quarter 18.7% pace of expansion, and Eurozone economic and industrial confidence reports came in better than expected for this month. The euro was higher versus the U.S. dollar and the British pound dipped. Bond yields in the core Eurozone nations and the U.K. were mixed.

The U.K. FTSE 100 Index was up 0.1%, France's CAC-40 Index rose 0.6%, Germany's DAX Index gained 0.4%, Italy's FTSE MIB Index increased 0.7%, Spain's IBEX 35 Index advanced 1.1%, and Switzerland's Swiss Market Index was little changed.

Stocks in Asia finished mixed in the final session of the week that has seen solid gains in the region on continued optimism regarding progress on the COVID-19 vaccine/treatment front, as well as the eased U.S. political uncertainty. A sharp jump in China’s industrial profits for October that was reported overnight appeared to foster some positive sentiment, but November inflation figures out of Tokyo came in cooler than expected. China’s Shanghai Composite Index rallied 1.1% and the Hong Kong Hang Seng Index gained 0.3%, while Japan’s Nikkei 225 Index advanced 0.4%, even as the yen strengthened a bit late in the day. South Korea’s Kospi Index moved 0.3% to the upside, though Australia’s S&P/ASX 200 Index declined 0.5% and India’s S&P BSE Sensex 30 Index dipped 0.3% as the nation report a smaller-than-expected year-over-year drop in it Q3 GDP just as the markets were closing. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, provides his 2021 Global Outlook: New Cycle, New Leadership, noting how we expect a near-term economic double-dip for the global economy to give way to a vaccine-led broad recovery in 2021.

Next week's international economic calendar will be busy, headlined by a plethora of November global Manufacturing and Services PMIs, notably out of China, Japan, the Eurozone and the U.K. Other reports on the docket that could move the markets include: Australia—the Reserve Bank of Australia monetary policy decision, the trade balance, Q3 GDP and retail sales. India—the Reserve Bank of India monetary policy decision. Japan—industrial production and retail sales. Eurozone—CPI and retail sales, along with German factory orders and unemployment change.   

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