Global stocks continue to rally. Surging COVID-19 cases and fresh economic shutdowns were countered by vaccine optimism and apparent progress toward a potential $908 billion stimulus bill. A decline in jobs growth in November showed the virus is still a headwind for the economy but also prompted greater confidence for potential stimulus. Mortgage rates fell to a fresh record low with the average 30-year fixed loan at 2.71%, despite long-term treasury rates rising this week.
S&P 500: 3,699 (+1.7%)
FTSE All-World ex-US (VEU): (+1.4%)
US 10 Year Treasury Yield: 0.97% (+0.12%)
Gold: $1,839 (+2.9%)
EUR/USD: $1.212 (+1.3%)
- Monday – Moderna asked for U.S. and European approval for use of its vaccine.
- Monday – October home sales unexpectedly fell 1.1% as higher prices may have deterred some buyers.
- Wednesday – House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer pushed for passage of a $908 billion stimulus package.
- Thursday – Boeing won the first order for the 737-Max since its grounding from Ryanair.
- Thursday – OPEC and Russia agreed to a compromise that will increase production by 500,000 barrels along with a monthly assessment. Brent Crude rose toward $50.
- Thursday – The U.S. added more jobs than expected in October. Unemployment dropped to 6.9%.
- Friday – The U.S. added 245,000 jobs in November, a sharp decline in growth but enough to drop the official unemployment rate to 6.7%.
In theory, stocks are valued based on the discounted value of their future cash flows, primarily dividends. In reality, they fluctuate dramatically based on short-term sentiment and liquidity. Recency bias and near-term bias are powerful forces, making the current situation with COVID-19 an interesting case study.
Spiking case counts and fresh economic shutdowns are occurring just as a vaccine appears imminent. As such, investors must balance the difficult quarters ahead with the potential to return to a more normal economy as soon as summertime. In general, equity markets appear to be taking a longer-term view, which some investors may take some comfort in.
The total U.S. stock market is now solidly up for the year, and traditional valuation metrics are above historical averages despite the pandemic. Assuming an effective vaccine, aggressive stimulus packages and ultra-low interest rates, this may make sense. Of course, interest rates may not stay low forever.