E US Stock Market Weekly Review Nov. 30- Dec. 4, 2020

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.

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Disclosure: I have no position in any stock mentioned

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William K. 1 month ago Member's comment

While there are short term positives and some folks do not understand the difference between value and price. soon parted are fools and their money. An old saw, still true. The problem with folks out of work is that the costs of living do not stop, and not everybody has room to cut expenses. The danger lies in the rising desperation. At some point things snap, or break with a bang. This would not be the first time, but probably the worst time, because of the level of misery. Like some analyst,or philosopher, said many years ago, folks will tolerate a lot of misery for quite a while, and then all at once, they wont tolerate it any more.

I do not claim to have a solution, but certainly I see a problem.