GAS Weekly 9th-13th Nov 2020

US indices made new highs this week. Most of the indices traded higher week-on-week but more or less flattish throughout the week, as investors were digesting the massive post-elections rally and the vaccine news, while also looking for new triggers to drive the markets into the year end. Still, there was quite a bit going on. Read on…

We saw new highs this week. The elections and vaccine definitely put a lot of hope into the people’s minds as to a faster trajectory of the recovery due. As of now though, we’re still in a recession, remember that. For us, Smart Investors, the trends in the labour market are going to be crutial in establishing when the economy is going to enter the Recovery phase. To me personally it seems like early 2021 might be the time for that to happen, but of course I do not want to forecast the forecast. Appropriate phase-change allocation changes in both the Global Leaders Portfolio (GLP) and the Pension Portfolio (PP) will only happen once we get a clear sign from our basic macro tool – the Enhanced Aggregate Spread (or Mr. Model) by Dr.Robert Dieli. Stay tuned, bigger portfolio changes will be due then.

Let’s move on to the current issues…

Last week

-> Monday saw a burst of upside volatility after “Pfizer and BioNTech said their coronavirus vaccine candidate was more than 90% effective in preventing Covid-19 infections”. Both SP500 and the Dow hit all time highs intraday. Later though a giant rotation out of the Tech space into the old economy stocks started (I wrote about it here for instance), which put pressure on the Nasdaq. Effectively the market closed much lower vs. where it started the day. The big rotation continued pretty much till Wednesday. The “stay-at-home” stocks like Zoom (ZM), Amazon (AMZN), Netflix (NFLX) or Peloton Interactive (PTON) and others all stalled this week, as people chased into the downbeat sectors like Cruisers, Restaurant, Airlines and Energy.
-> The rotation story continued on Tuesday.
-> Wednesday was when the Techs saw some revival and started catching up with the other sectors. Nasdaq popped 2% on that day and outperformed SP500. There’s been many comments though that in the mid-term the best buys right now are the cyclicals like Basic Materials, Consumer Cyclical, Financial Services, and Real Estate.
-> The pops and drops continued till end of the week pretty much. The Dow was down 300 points on Thursday only to claw back up on Friday. Bottom line is that on a weekly basis equities ended the week at all-time highs as per the below graph for SP500:

-> The Fed Chair Jerome Powell warned on Thursday that we’re not quite yet out of the woods and that the outlook still remains “uncertain” as he put it.
-> This week Value showed what it’s worth finally after loong months of being in great defence vs. Growth.
-> Also what’s worth mentioning is great performance of the EU equities this week again, which have been a lagging asset group all pandemic long.
-> Effective weekly index changes: S&P500 +2.2%, Nasdaq -0.6%, EuroStoxx600 +5.3%, DAX +4.8%, Nikkei225 +4.4%.

Other markets events:

-> Bonds: the US yield curve (10y-FF) around widened to almost 80bps on revival hopes and risk-on mood, same with the German curve (10Y Bunds-3M) at 14bps with 10Y Bunds at -0.55%. High Yield Spreads keep staying low at aroud 4.5.
-> Commodities (ex oil): value holding and safe haven commodities underperformed massively this week with Gold down 3.2% on week, Silver down 3.8% and Platinum flat on week.
-> Oil: was the commodity star of the week gaining 7.4% on expectations of growing demand from the Energy and Transportation sectors.
-> Currencies: DXY (Dollar Index) +0.5% on week, EURUSD -0.3%.

Major macro events: (times are CET; source: tradingeconomics.com):

Next Week’s major macro events: 

Yours!
PC


Disclaimers: None of the ideas, views and thoughts presented here shall ever be taken as a recommendation to buy or sell stocks,bonds,FX,commodities or any other financial instruments as stated in REGULATION (EU) No 596/2014 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC or the Polish Act of 10 February 2017 amending the act on trading in financial instruments and some other acts. The article is for educational reasons and purely presents private views of the author, thus the author shall not be held accountable for any losses of a third party resulting from any potential trading activities in any instruments, both specifically or by category of assets. The author uses his best knowledge and data from sources believed to be reliable, but makes no representations as to the accuracy of the data.Full Disclaimers&Liability Limitations page.