Weekly Market Commentary 12/11/2020

-Darren Leavitt, CFA

Market action was mixed for the week.  Hope for another tranche of stimulus and positive news on a coronavirus vaccine’s progress aided market sentiment early in the week.  However, COVID-19 infection rates continued to spike, and with it, more state and local government lockdowns were announced.  Economic data reported in the week was also mixed but showed signs of regression on the employment front.  Highlighted by the Airbnb IPO, another set of unicorn IPO’s debuted during the week and cued concerns over frothy valuations.

For the week, the S&P 500 lost 1%, the Dow shed 0.6%, the Nasdaq fell 0.7%, and the Russell 2000 bucked the trend with a gain of 1%.  US Treasuries were bid higher, moving yields lower across the curve.  The 2-year note yield fell three basis points to close at 0.11%, while the 10-year bond yield decreased by eight basis points to close at 0.89%.  Gold and Oil prices were little changed for the week closing at $1843.30 an Oz and $46.58 a barrel.  There were no changes to our models.

Investors were hopeful that Washington could agree on another round of stimulus, but by Friday, it appeared both sides were again at a stalemate.  A bipartisan 908-billion-dollar proposal fell short for Republicans on business liability and state and local government funding issues.  Treasury Secretary, Mnuchin proposed a 916-billion-dollar package, but it fell short in the democrat’s eyes because it excluded unemployment benefits.  The two sides were able to extend the time-line to keep the government funded for another week.  There is a real chance that negotiations on the funding bill could incorporate an agreement for more stimulus, and it is something we will be watching this week.

Inoculations started in the UK this week using the Pfizer-BioNtech vaccine.  In the US, the FDA also gave emergency use approval for the Pfizer-BioNtech vaccine, and it is expected that vaccinations will begin in the next couple of days.  An FDA panel also found that the Astra Zeneca /Oxford vaccine was effective and safe, setting the vaccine up to be formally reviewed by the FDA for EUA.  It is also widely expected that the Moderna vaccine will be approved soon.  Sanofi announced that their vaccine trials would continue, but it will most likely seek approval in late 2021.  The approval of these vaccines could not come soon enough.  Numerous states and local governments are taking lockdown measures to stem the increase in infection rates.  Shelter and place orders are in effect for many of California’s major cities.  In some Arizona counties, ICU bed capacity is exhausted.  New York and Pennsylvania announced more extensive lockdown measures.

Interestingly, preliminary University of Michigan consumer sentiment data came in better than expected despite the lockdown measures.  On the flip side, initial claims were up 137k for the week to 853k versus expectations of 720k.  Continuing claims also regressed and were up 230k to 5.757 million.

One area of the market that continues to be red hot is the initial public offering (IPO) market.  This week we saw Airbnb go public.  The stock priced at $68 a share, and the first public trade was at $146- the stock closed its first day of trading up 112%.  Similarly, Door Dash came to market pricing at $102 a share and closing its first day up 85%.  These two names were the headliners for the week, but other IPO’s priced during the week also did quite well.  This is a trend that has been in place for the 3rd and 4th quarters.  Some think that this type of market action demonstrates the current market’s speculative nature and one that requires caution.  Many of the recent IPOs have been Tech-related. Interestingly, there appears to be a broadening movement in Washington to clip many of our largest Technology firms’ wings.  This week the FTC and many states filed suits against Facebook claiming their anti-competitive, but the news was a bit overshadowed by the hot Ipo headlines.  The move to curb Technology companies’ influence has been gaining traction on both sides of the aisle in Washington and is a theme to watch in 2021.

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