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The major indices ended the week mixed, as investors weighed strong economic and profits data against inflation fears, ongoing supply strains, and a rise in coronavirus infections in some regions. Growth stocks handily outpaced value stocks, helping lift the Nasdaq Composite to another record intraday high on Friday. Sector returns also varied widely within the S&P 500 Index. A solid gain in Amazon.com shares and a partial rebound in Tesla boosted consumer discretionary stocks, while strength in Apple supported information technology shares. Energy stocks dropped alongside oil prices, after China and the U.S. discussed releasing strategic reserves and U.S. inventories rose for the first time in five weeks. Financials were also weak. Market activity was generally subdued, with Thanksgiving week here.
Several signs that the economic expansion was regaining momentum seemed to support sentiment early in the week. On Tuesday, the Commerce Department reported that retail sales jumped 1.7% in October, the biggest gain since March, while September’s increase was also revised higher. Although inflation was partly behind the increase—sales at gas stations rose 3.9%, for example—it appears early holiday shopping was also at work. Industrial production in October also rose much more than expected (1.6% versus around 0.7%), and current measures of manufacturing activity in the New York region are outpacing estimates.
Wall Street seemed to be on the lookout for the announcement of the next Federal Reserve (Fed) Chair, waiting to see if Joe Biden would reappoint current Chair Jerome Powell or, instead, promote Fed Governor Lael Brainard, who is widely viewed as among the most “dovish” of Fed officials. Although Powell remains, many viewed the possibility of Brainard’s appointment as having weighed on financial shares by lowering interest rate expectations and, therefore, banks’ lending margins (some also believed that Brainard would have pursued more stringent bank regulations).
U.S. Treasury yields ended Thursday little changed relative to last week’s levels, but decreased Friday morning on concerns that Germany could follow Austria in implementing another nationwide lockdown to fight COVID-19. The Treasury rally was broad-based along the yield curve, suggesting that investors expect the Fed to take a somewhat more patient approach toward rate hikes amid potentially slower economic growth.
As we continue to watch the interplay between the Fed’s musings and the very real signs of inflation in the economy, the pending passage of the Build Back Better Act must also garner some attention. The perceived implications of the Act on the Tax Code and, as such, taxpayers, has already reached a fevered pitch, and where the legislation lands could cause the markets to tilt for a time (further up or down). We’ve got our eyes on a lot of information, this time of year, and all of it has weight.
Thanksgiving is upon us, and despite the complexities and seemingly unimportant factors that often influence the economy and the markets, we remain thankful that it is all part of God’s perfect plan. “Give praise to the Lord, proclaim his name; make known among the nations what he has done, and proclaim that his name is exalted. Sing to the Lord, for he has done glorious things; let this be known to all the world” (Isaiah 12:4-5). Happy Thanksgiving!
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