S&P 500: Leaders no longer leading
First, please read the Disclaimer.
Daily new cases of COVID-19 continue to spike upwards, warning of further shutdowns as medical facilities are overrun.
Payrolls
The latest labor report disappointed, especially as the November survey came before the latest round of layoffs after states imposed tighter restrictions.
Payroll growth flattened, leaving total payroll down 5.99% compared to November last year.
Hours worked are slightly more encouraging, down 4.68% on an annual basis, compared to -2.9% change in real GDP.
Vaccines
Encouraging news on the vaccine front but "when you hear the cavalry is coming to your rescue, you don't stop shooting. You redouble your efforts." (Dr Anthony Fauci)
Stocks
Progress in manufacturing vaccines that will soon be widely available has buoyed stocks despite the dismal economic outlook. The S&P 500 made new highs, assisted by hopes of further stimulus and ultra-low interest rates. The large megaphone pattern is a poor indicator of future direction but does flag unusual volatility.
Growth in the big five technology stocks has slowed in recent months, with only Alphabet (GOOGL) breaking above its September high. Too early to tell, but failure of market leaders to make new highs is typical of the late stages of a bull market.
Conclusion
Vaccines should succeed in flattening the third wave and suppressing future outbreaks but are unlikely to succeed in restoring the economy to normalcy.
Federal debt is at a record 123% of GDP and growing. Further stimulus is required to support the still-fragile recovery.
The Fed will continue to expand its balance sheet to support Treasury issuance.
Ultra-low interest rates are likely to stay for a number of years.
If massive federal debt, QE and ultra-low interest rates does not cause a spike in inflation, that will encourage authorities to push the envelope even further (we fear this would have disastrous consequences).
Unemployment is expected to remain high and GDP growth likely to remain low.
Zombie corporations and commercial real estate with unsustainable debt levels will continue to be a drag on economic growth.
Growth stocks are expected to remain overpriced relative to current and future earnings.
Quote for the Week
"Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years."
~ Warren Buffett
Updates for Market Analysis Subscribers
Please take advantage of our $1 special offer for the first month. Cancel at any time.
- S&P 500: Leaders no longer leading
- Gold rallies as Dollar weakens
- ASX: Iron ore goes ballistic
- Gold: Negative real interest rates here to stay
- Warren Buffett: Speculation v. Investment
- Are we headed back to a Gold standard?
- Australia Q3 GDP
- China: Expect "protracted war"
- Australia's credit and investment slump
- Australian Growth: Performance at 31 October 2020
- International Growth: Performance at 31 October 2020
Disclaimer
Colin Twiggs is director of The Patient Investor Pty Ltd, an Authorised Representative (no. 1256439) of MoneySherpa Pty Limited which holds Australian Financial Services Licence No. 451289.
Everything contained in this web site, related newsletters, training videos and training courses (collectively referred to as the "Material") has been written for the purpose of teaching analysis, trading and investment techniques. The Material neither purports to be, nor is it intended to be, advice to trade or to invest in any financial instrument, or class of financial instruments, or to use any particular methods of trading or investing.
Advice in the Material is provided for the general information of readers and viewers (collectively referred to as "Readers") and does not have regard to any particular person's investment objectives, financial situation or needs. Accordingly, no Reader should act on the basis of any information in the Material without properly considering its applicability to their financial circumstances. If not properly qualified to do this for themselves, Readers should seek professional advice.
Investing and trading involves risk of loss. Past results are not necessarily indicative of future results.
The decision to invest or trade is for the Reader alone. We expressly disclaim all and any liability to any person, with respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance upon the whole or any part of the Material.
Please read the Financial Services Guide.