The Balancing Act

Last week saw the equity markets performing a balancing act between incoming positive vaccine news and ever-growing economic restrictions aimed at curbing the recent spike in virus cases and hospitalizations. The rotation out of the technology sector and into more cyclicals stocks continued, as the vaccine developments improved investor sentiment and confidence about next year’s outlook. Meanwhile, the jobs-data release showed worse-than-expected initial jobless claims.

The choppy week ended with little change overall. The S&P 500 and the Dow were slightly negative, the NASDAQ was modestly positive, and none of the major indexes moved more than 1% for the week.

U.S. Treasury Secretary Steven Mnuchin, on Thursday, said he would not extend most of the emergency lending programs that his agency has been running in tandem with the U.S. Federal Reserve amid the coronavirus pandemic. The decision to curb the programs at the end of December comes as the economy faces new challenges from the latest spike in COVID-19 cases.

Figures from the just-completed quarterly earnings season show that profits at S&P 500 companies fell an average 6.6% compared with the same quarter a year earlier, according to FactSet. That’s the fourth-largest quarterly decline since 2009. Healthcare posted the strongest earnings growth at the sector level, rising 13.0%.  That said, and as we’ve been noting, this decline was better than expected.

Tomorrow (Wednesday) will yield a bumper crop of economic reports in a holiday-shortened week. Releases are scheduled on everything from quarterly GDP to U.S. Federal Reserve meeting minutes, weekly unemployment claims and more. U.S. markets will be closed Thursday due to the Thanksgiving holiday, and markets will close early for the day on Friday.

We remain excited and cautiously optimistic about the end of the year. The beginnings of transition to the new White House administration will, undoubtedly, have some short-term impact on a variety of sectors that will likely be affected by policy changes. Maintaining balanced footing may be challenging during this time, but we are confident that our balanced approach to research and implementation will keep the portfolios steady.

Sources: Yahoo Finance, Reuters.com, and JP Morgan Market Insights

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