Economic and political backdrop
Stock futures rose on the heels of two significant vaccine announcements during last week. Last Monday, Moderna reported early data showing its mRNA vaccine was 94.5% effective in preventing coronavirus infections while also appearing to prevent severe disease in the few test subjects who did contract the virus. Investors seemed further encouraged that Moderna’s vaccine confirmed the efficacy of the mRNA approach also used by Pfizer in partnership with Germany’s BioNTech. Indeed, on Wednesday, the two companies announced revised data showing their vaccine was 95% effective, a higher level than the 90%+ initially reported. On Friday morning, Pfizer announced it had filed for emergency use authorisation of the vaccine with the US Food and Drug Administration.
Further evidence emerged during the week that the pandemic and its drag on the economy would get worse before the vaccines would become widely available, however. New local shutdowns and restrictions were announced across the country as case counts rose and hospital systems grew more stressed. Sentiment seemed to take a particular blow from news Wednesday that the New York City public school system, the nation’s largest, would be switching to remote learning. Meanwhile, mobility measures, credit card purchases and other high-frequency data showed that consumers were growing more cautious and staying closer to home, whether because of mandates or personal choice. In a grim milestone, the number of US fatalities attributed to the disease crossed 250,000.
It also appeared unlikely that substantial federal fiscal aid would help offset the impact of the surge in the virus, as it had in the spring. The chances for a bipartisan agreement on a new stimulus package appeared to remain slim, especially with President Trump continuing to refuse to concede the election. The market did catch a bid late in the afternoon Thursday, after rumours surfaced that Senate Majority Leader Mitch McConnell had agreed to resume negotiations with Democrats in Congress.
Around the same time, however, Treasury Secretary Steven Mnuchin announced in a letter to the Federal Reserve that he would allow several of the central bank’s emergency lending programmes to expire at the end of the year. Mnuchin cited improved financial conditions in requesting the return of USD 455 billion of unused funding, but in a rare move, Fed officials quickly released a statement announcing their disagreement with the decision, citing a “still-strained and vulnerable economy.” On Friday, Mnuchin stated he planned instead to use the money to fund direct grants to workers and small businesses, perhaps muting the impact of the decision on markets.
Last week’s economic data arguably provided evidence for the Fed’s continued caution. Weekly jobless claims rose for the first time in over a month, from 711,000 to 742,000. Continuing claims through state insurance programmes continued to fall, from 6.8 million to 6.4 million, although the drop was mostly offset by rising claims through a federal programme providing extended benefits, from around 4.1 million to 4.4 million. Retail sales excluding autos in October missed expectations and grew at the slowest pace (0.2%) since April. Industrial production rose a bit more than expected in October, but regional manufacturing gauges indicated slowing expansion. The housing sector remained the standout in the recovery, with sales and construction indicators hitting their highest levels since 2006–2007.
The S&P 500 lost 0.7% (11.9% YTD) as good news on the vaccine front continued to be offset by worries about the worsening of the pandemic in most parts of the US. The Dow Jones Industrial Average, the S&P MidCap 400 and the small-cap Russell 2000 all reached new intraday highs in the first part of the week before surrendering some of their gains. Energy shares outperformed as oil prices rose on hopes for an end to the pandemic in 2021, as well as signals that OPEC and other major oil exporters would delay a global production increase planned for January. Healthcare and utilities shares lagged. Value outperformed growth and small caps outperformed large caps, with Russell 1000 Growth returning -0.5% (29.2% YTD), Russell 1000 Value 0.1% (-2.6% YTD) and Russell 2000 2.4% (8.3% YTD).
Fixed income markets
The mixed economic outlook and growing coronavirus concerns pushed the US 10-year Treasury yield from 0.90% to 0.83%, its lowest level in two weeks.
Positive vaccine headlines led investment-grade corporate bond spreads tighter to start last week, with higher-risk energy and pandemic-sensitive issuers, including air lessor and leisure names, outpacing the broader market. The economic backdrop was dampened by the rapid rise in COVID-19 cases, but spreads largely held or moved tighter, supported by strong demand from Asia and healthy trading volumes. The primary calendar was active, and the levels of new issuance surpassed expectations.
Solid equity returns early in the week supported the performance of high yield bonds. Favourable technical conditions due to steady new issuance and positive flows were also supportive, and investors generally seemed to focus on putting money to work in new deals. Credit spreads tightened across all quality tiers.
Sign up for US Equity insights from T. Rowe Price
Share this article:
For Investment professionals only. Not for retail distribution.
All data and index returns cited herein are the property of their respective owners, and provided to T. Rowe Price under license via data sources including FactSet, Frank Russell, MSCI and S&P. All rights reserved. T. Rowe Price seeks to cite data from sources it deems to be accurate, but it cannot guarantee the accuracy of any data cited herein. Neither T. Rowe Price, nor any of its third-party data vendors make any express or implied warranties or representations and shall have no liability whatsoever with respect to any data and index returns contained herein. The data and index returns cited herein may not be further redistributed or used as the basis for other indices, as a benchmark or as the basis for any other financial product.
Financial data and analytics provider FactSet. Copyright 2020 FactSet. All Rights Reserved.
London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2020. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.
MSCI and its affiliates and third-party sources and providers (collectively, “MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.
The S&P 500 Index is a product of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates (“SPDJI”) and T. Rowe Price has been licensed for use by T. Rowe Price. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by T. Rowe Price. T. Rowe Price’s US Financial Markets – The Week in Review is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P 500 Index.
The specific securities identified and described are for informational purposes only and do not represent recommendations.
This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.
The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.
Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.
The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.
It is not intended for distribution to retail investors in any jurisdiction.
DIFC – Issued in the Dubai International Financial Centre by T. Rowe Price International Ltd. This material is communicated on behalf of T. Rowe Price International Ltd by its representative office which is regulated by the Dubai Financial Services Authority. For Professional Clients only.
EEA ex-UK – Unless indicated otherwise this material is issued and approved by T. Rowe Price (Luxembourg) Management S.à r.l. 35 Boulevard du Prince Henri L-1724 Luxembourg which is authorised and regulated by the Luxembourg Commission de Surveillance du Secteur Financier. For Professional Clients only.
Switzerland – Issued in Switzerland by T. Rowe Price (Switzerland) GmbH, Talstrasse 65, 6th Floor, 8001 Zurich, Switzerland. For Qualified Investors only.
UK – This material is issued and approved by T. Rowe Price International Ltd, 60 Queen Victoria Street, London, EC4N 4TZ which is authorised and regulated by the UK Financial Conduct Authority. For Professional Clients only.
© 2020 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc.
You might be interested in…
Read Time: 9 mins
Read Time: 4 mins
Read Time: 8 mins
Read Time: < 1 mins
See our comprehensive range of US equity funds