Weighing The Week Ahead: What Can Investors Expect Before Springtime?

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We can enjoy two light weeks for economic reports. Both are holiday-shortened, implying lower volume but not necessarily lower volatility. Personal income and spending will be especially interesting, along with updated unemployment claims data. It is also an especially important time to monitor sentiment.

The biggest reports are schedule for the first week of 2021.

The calendar will prompt many to offer specific and complex forecasts for next year. Good luck with that! It is necessary for investors to think ahead, but dangerous to drive faster than you can see on a foggy road.

A good approach to this is for investors to ask: What should we expect before Springtime?

It is a general question for a good reason. The relevant answers cover many different fronts, as today’s post illustrates.

Last Week Summary

In my last installment of WTWA, I described the challenges of Washington gridlock with special attention to COVID-19 aid and the potential government shutdown. That was a good call, since it dominated news stories all week. As I write this, negotiations continue demonstrating that this is not an ordinary compromise situation.

Key Charts

I always start my personal review of the week by looking at some great charts. This provides a foundation for considering news and events. Whether or not we agree with Mr. Market, it is wise to know his current mood.

Market Story

I am featuring Jill Mislinski’s chart of the market week. Her approach combines several key variables in a simple readable format.

Sector Trends

Sector movement is another important clue to market trends.

Once again, Juan Luque provides us with some words of wisdom from the Incline trading desk:

The S&P 500 Index reached new highs this week on Thursday gaining 1.25% for the week. The Covid-19 vaccine and anticipation of possible additional stimulus keeps pushing stocks higher. Most sectors were up except for Communication Services (-0.46%) and Energy (-4.26%). Communication Services remains in the leading quadrant along with Financials. The Consumer Staples and Real Estate sectors have reversed and dropped into the lagging quadrant shown in red font. Information Technology was the leader this week with a 3.2% gain and changed its direction upwards gaining momentum. Energy shows a significant move and has reversed its long-term trend as it moves along the improving quadrant. Finally, the utilities sector has reversed and is moving directly into the lagging quadrant. Investors continue seeing with optimism the outcome of stimulus talks and the efficacy of the vaccine.

Comment

The market gained 1.3% on the week with a trading range of 2.8%. The Friday afternoon rebound was a big contributor. You can monitor the continuation of lower volatility in my Indicator Snapshot, featured in the Quant Corner below.

Personal Note

As I wrote last week, there will be no WTWA for the next two weeks. I am looking forward to more family time, and I hope readers are as well. I hope to catch up with a few shorter posts on some different topics. Portfolio managers can never be completely “off,” but there are chances to cut back a little.

Noteworthy

The Visual Capitalist has a timely look at vaccine purchases around the world.

The News Overview

Each week I break down events into good and bad. For our purposes, “good” has two components. The news must be market friendly and better than expectations. I avoid using my personal preferences in evaluating news – and you should, too.

My continuing assessment is that many of the normal economic indicators are not helpful in the wake of the COVID lockdown decline. Too many sources are focused on a change in direction, even if very modest, which has painted an overly optimistic picture. As the economy stalls, there will be a rapid switch in the diffusion indexes. The early signs are emerging. I expect some dramatic shifts over the next month or so.

Good

COVID-19 Vaccines

  • The FDA approved Moderna’s vaccine for emergency use. This is a big help in both the number of available doses and speedier delivery.
  • More vaccine progress from many countries. (Cuba’s Soberana 2 moves to Phase 2.) From the NYT Coronavirus Vaccine Tracker.

Housing

  • Housing starts for November registered 1574K (SAAR) beating expectations of 1530K and October’s 1528K. Calculated Risk points out that the prior two months were revised downward and that year-over-year comparisons are becoming more challenging (emphasis in the original).

Starts, year-to-date, are up 7.0% compared to the same period in 2019. This is close to my forecast for 2020, although I didn’t expect a pandemic!

I expect starts to remain solid, but the growth rate will slow.

  • Building permits for November hit a SAAR of 1639K topping expectations of 1550K and October’s 1528K.

  • Mortgage applications increased by 1.1% as the year-long strength continues.

  • NAHB Housing Index was the one negative spot for the week, declining to 86 for December versus expectations of 88 and November’s 90. (Calculated Risk).
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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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