The US stock market continued to move higher last week, adding more gains to the historic rally of November 2020. What are the catalysts that drive stocks higher and investors to defy valuation of stocks at these record highs for major indexes? Momentum is strong and so is risk-on mood in investing. Treasury yields rose, potentially reflecting expectations for an additional fiscal stimulus. I can argue that there is some sort of irrational exuberance in stock investing, as pushing stocks higher with a very bad jobs report amid a spike in COVID-19 infections that could impose further restrictions in economic and business activity, does not seem rational. The expectations of the vaccines and their effectiveness to end this pandemic are the dominant theme; fiscal stimulus hopes too. The stock market is highly driven by expectations and behavioral finance.
Economic News
Last week one of the main remarks was that “The labor market continues to be weak and its recovery is still having tons of uncertainty.” The jobs report released was a bad one, with the nonfarm payrolls released by the US Bureau of Labor Statistics coming in at 245K, significantly well below the consensus of 469K. The Unemployment rate edged lower at 6.7%, slightly beating the forecast of 6.8%.
Still, the weekly Continuing Jobless Claims and Initial Jobless Claims were both a beat on estimates. There is no consistency though in the trend.
The weak US Dollar is another factor to consider as it is positive news for exports but negative for imports, and in general economic theory, a strong currency is synonymous with a strong economy.
The ISM Non-Manufacturing Index released by the Institute for Supply Management (ISM) came in at 55.9, missing marginally the consensus of 56 but the ISM Manufacturing PMI figure released was 57.5, missing the estimated of 58. Nevertheless, any figure above the 50 level shows expansion for the business activity for the manufacturing and non-manufacturing sector.
For the week of November 30– December 4, 2020, the major US stock market indexes closed as follows on Friday, December 4, 2020:
• Dow Jones Industrial Average: Close 30218.26, +1.03% for the week, +5.89% Year-to-date
• S&P 500 Index: Close 3699.12, +1.67% for the week, +14.50% Year-to-date
• Nasdaq Composite: Close 12464.23, +2.12% for the week, +38.91%, Year-to-date
• Russell 2000: Close 1892.45 , +2.00% for the week, +13.42% Year-to-date
Economic events for the week of December 7- December 11, 2020:
Important economic data for the week will be the weekly Initial and Continuing Jobless Claims, the Consumer Price Index (CPI), and the Michigan Consumer Sentiment Index.
Sources:
https://www.wsj.com/market-data/stocks/us/indexes
https://www.barchart.com
https://www.fxstreet.com/economic-calendar
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