Wild Week Comes to a Close on a High Note
U.S. equities finished the last trading session of a wild week on a positive note, but were unable to secure a sweep of weekly gains. The markets have seen some large swings since Monday's rally, with optimism of a COVID-19 vaccine sparking some rotation into the hampered cyclically-natured and value stocks to the detriment of the high-flying mega-cap growth issues. Festering concerns regarding the implications of the persistent surge in new COVID-19 cases also had a hand in the bumpiness this week. The earnings front continued to paint a positive picture, courtesy of results from Dow members Walt Disney and Cisco Systems, along with Applied Materials. However, economic news was mixed, showing that November consumer sentiment unexpectedly fell and headline wholesale price inflation was hotter than forecasted. Treasury yields were flat and the U.S. dollar dipped, while crude oil prices were lower and gold gained ground. Europe finished out the week mostly higher, while markets in Asia were mixed. The Dow Jones Industrial Average increased 400 points (1.4%) to 29,480, the S&P 500 Index was up 48 points (1.4%) at 3,585, and the Nasdaq Composite gained 120 points (1.0%) to 11,829. In moderately-heavy volume, 887 million shares were traded on the NYSE and 3.9 billion shares changed hands on the Nasdaq. WTI crude oil was $0.99 lower at $40.13 per barrel and wholesale gasoline lost $0.03 to $1.13 per gallon. Elsewhere, the Bloomberg gold spot price rose $11.38 to $1,888.21 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 92.76. Markets were mixed for the week, as the DJIA rose 4.1% and the S&P 500 increased 2.2%, but the Nasdaq Composite declined 0.6%. Dow member Walt Disney Company (DIS $138) reported a fiscal Q4 loss of $0.39 per share, or a shortfall of $0.20 ex-items, versus the FactSet estimate calling for a $0.71 per share loss. Revenues declined 23.0% year-over-year (y/y) to $14.7 billion, topping the Street's expectation of $14.2 billion. The company noted that the most significant adverse impact of the COVID-19 pandemic was seen in its parks, experiences and products segment, while the impacts in its media networks, studio entertainment and direct-to-consumer and international segments were less significant. DIS highlighted "the real bright spot" of its direct-to-consumer business, with its Disney+ having more than 73 million paid subscribers, far surpassing its expectations in its first year. Shares were higher. Dow component Cisco Systems Inc. (CSCO $41) posted fiscal Q1 earnings-per-share (EPS) of $0.51, or $0.76 ex-items, compared to the projected $0.70. Revenues decreased 9.0% y/y to $11.9 billion, roughly in line with expectations. The company said its Q1 results reflect good execution with strong margins in a challenging environment. CSCO issued Q2 guidance that was above estimates, noting that it sees great opportunities ahead as "every company in every industry" is accelerating its digital-first strategy. Separately, the company announced the appointment of R. Scott Herren as Executive Vice President and Chief Financial Officer, succeeding Kelly Kramer who will retire after nine years with Cisco Systems. Shares rallied. Applied Materials Inc. (AMAT $73) announced fiscal Q4 EPS of $1.23, or $1.25 ex-items, versus the projected $1.17. Revenues rose 25.0% y/y to $4.7 billion, just above the expected $4.6 billion. The semiconductor equipment company said it closed fiscal 2020 with record quarterly performance as demand for its semiconductor systems and services remains "very strong." AMAT issued Q1 guidance that exceeded forecasts. Shares traded nicely higher. The stock markets have seen some wild swings as of late, with the markets cheering positive news on the COVID-19 vaccine front, while remaining uneasy regarding the impact of the continued surging of new virus cases. The markets are eyeing the timing, size and scope of a potential expected new round of fiscal relief measures, while monetary policy remains extremely accommodative and Fed Chairman Jerome Powell yesterday, along with heads of central banks in the Eurozone and U.K., noted that more may need to be done but stressed the importance of fiscal support to bridge the gap before any potential vaccine can be distributed. For a look at the market environment, check out Schwab's Managing Director and Senior Investment Strategist, David Kastner's, CFA, latest Schwab Sector Views: Election, Vaccine News Change the Picture. For timely strategies on how to navigate the volatile market environment and in-depth analysis of the election results, check out our Market Insights page, and you can follow us on Twitter at @SchwabResearch. November consumer sentiment unexpectedly falls, wholesale price inflation mixed The November preliminary University of Michigan Consumer Sentiment Index (chart) fell to 77.0 versus the Bloomberg expectation of a slight improvement to 82.0 from October's 81.8 reading. The index fell back to levels seen in the summer as both the current conditions and the expectations portions of the index both came in well below estimates. The 1-year inflation forecast rose to 2.8% from October's 2.6% rate, and the 5-10 year inflation forecast also increased to 2.6% from the prior month's 2.4% level. The Producer Price Index (PPI) (chart) showed prices at the wholesale level in October rose 0.3% month-over-month (m/m), versus forecasts calling for a 0.2% gain and September's unrevised 0.4% increase. The core rate, which excludes food and energy, ticked 0.1% higher m/m, just shy of estimates of a 0.2% gain and compared to September's unadjusted 0.4% rise. Y/Y, the headline rate was 1.1% higher, compared to projections to match the prior month's unadjusted 1.2% increase. The core PPI gained 0.8% y/y last month, below estimates of a 0.9% increase, and compared to September's unrevised 0.7% rise. Treasuries were unchanged, as the yields on the 2-year and 10-year notes, as well as the 30-year bond, were flat at 0.18%, 0.88% and 1.65%, respectively. The recent rise in bond yields has garnered some attention and Schwab's Chief Fixed Income Strategist Kathy Jones notes in her article, Do Bonds Still Provide Diversification?, that many fear that if markets become volatile and stocks decline again, bond yields don't have much room to fall—and therefore, won't provide the balance to a portfolio that they have in the past. She points out that in our view, those fears appear overblown. Europe mostly higher, Asia mixed to close out the week European equities finished mostly higher, as the global markets continued to grapple with the optimism generated by the COVID-19 vaccine breakthrough earlier this week, along with the implications of the surging new cases in Europe and the U.S. Also, the markets were given some upbeat earnings guidance out of the U.S. Information Technology sector overnight. Technology stocks led to the upside, along with Financials, while the Energy sector, which had received a boost early in the week, saw some pressure amid a decline in crude oil prices. The euro and British pound gained ground on the U.S. dollar and bond yields in the Eurozone and U.K. were lower. Attention remained on the implications of the recent U.S. presidential election, particularly on timing, size and scope of any new fiscal relief measures, and Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, points out in his latest article, Election Day to Inauguration Day: a test for global stock markets, how stock market performance during the transition period between outgoing and incoming U.S. presidents tends to be more dependent on the economic cycle than the election results. The U.K. FTSE 100 Index was down 0.4% and Switzerland's Swiss Market Index was little changed, while France's CAC-40 Index rose 0.3%, Italy's FTSE MIB Index was up 0.4%, Germany's DAX Index gained 0.2%, and Spain's IBEX 35 Index advanced 0.8%. Stocks in Asia finished mixed as the global markets continue to cheer the week's COVID-19 vaccine breakthrough, but remaining skittish amid concerns about the implications of the persistent surge in virus cases in the world's largest economy of the U.S. Moreover, Europe's semi-lockdown measures in response to the recent resurgence of cases appeared to also counter the positive vaccine news. Japan's Nikkei 225 Index declined 0.5%, with the yen gaining ground, and following yesterday's disappointing read on core machine orders—a measure of business investment. China's Shanghai Composite Index fell 0.9% on the heels of this week's government's proposal to increase antitrust efforts on the internet industry. The Hong Kong Hang Seng Index dipped 0.1% and Australia's S&P/ASX 200 Index declined 0.2%. However, South Korea's Kospi Index gained 0.7% in the wake of some upbeat tech earnings in the U.S. overnight, and India's S&P BSE Sensex 30 Index nudged 0.2% higher following late-yesterday's hotter-than-anticipated consumer price inflation data for last month but stronger-than-estimated industrial production figures for September. Schwab's Jeffrey Kleintop offers a look at the global landscape in his article, "De-globalization" Already Happened And It Didn't Matter, noting how for investors, the stall in global trade since 2008 hasn't necessarily led to a stall in profits for multinational companies that make up the major stock market indexes or a decline in the international portion of those profits. Wild weekly ride for stocks continues After following the worst weekly drop since the pandemic first disrupted the stock markets with the best weekly advance since April last week, U.S. stocks again registered a noticeable move on the week. The major indexes (S&P 500, Dow and Nasdaq) finished mixed after Monday's announcement from Pfizer Inc. (PFE $39) and BioNTech SE (BNTX $106) that study results of their investigational COVID-19 vaccine showed more than 90% efficacy. The news offered hope that we could be seeing a glimmer of light at the end of the pandemic's tunnel, initially sparking a swift rotation out of the high-flying mega-cap growth stocks and into cyclically-natured and value equities. As such, Energy, Financials and Industrials sectors led the S&P 500 and Dow nicely higher, though the Consumer Discretionary, Information Technology and Communications Services sectors weighed on the Nasdaq. Elsewhere, Treasury yields rose as bond prices slid, resulting in some yield curve steepening to add a boost to the advance in the Financials sector, and the U.S. dollar moved higher, along with crude oil prices. Gold gave back some of last week's rally. However, some of the aforementioned moves unwound as the week matured amid festering concerns regarding the impact of the persistent rise in new COVID-19 cases in the world's largest economy of the U.S. Moreover, in the wake of the presidential election, with two Senate seats in Georgia still up for grabs, some uncertainty ensued regarding the timing, size, and scope of a highly-expected fiscal relief package. Next week, although the economic calendar will likely continue to take a back seat to the developments on the COVID-19 fight, the docket is poised to deliver some key reads on housing, consumer activity, industrial activity and employment. The Empire Manufacturing Indexwill get the ball rolling on the week and for a host of November regional reports that will pour in, followed by what could be the headlining data point for the week, the October retail sales release. The November NAHB Housing Market Index—a gauge of homebuilder sentiment—will kick off a string of housing reports that will include October data on housing starts and building permits and existing home sales. Initial jobless claims for the week ended November 14th will highlight the second-half of the week, along with the October Index of Leading Economic Indicators. Next week's international economic calendar could also provide some market-moving data with reports of note including: Australia—employment change. China—industrial production, retail sales and the 1-year and 5-year loan prime rate decisions. Japan—Q3 GDP, industrial production, trade balance, and November preliminary Manufacturing and Services PMIs. Eurozone—new car registrations, consumer price inflation, and consumer confidence. U.K.—inflation statistics and retail sales. 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. Bond yields have started to rise on expectations for a stronger economy in 2021. 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.
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