The market extended its hot streak despite increasing concerns over a darkening COVID winter. Rumors of an imminent stimulus deal led investors to overlook a lack luster jobs report for November. Even as COVID shutdowns continue to take affect across the country, the market remains focused on any news suggesting a better situation in the months ahead. Find all of this plus more on the permanent damage done to small businesses in this weeks @KonvergentWP Market Update Blog.
Here are the top three things we’re covering this week’s blog:
The Market
The S&P was up 1.67% on the week as optimism grew over a second stimulus package. Investors remained heavily focused on the ever so bright future and continued to look past the concerning events currently taking place. After a slow start to the week on Monday, the market quickly recovered and ended the Friday session on a strong note. A concerning announcement from Pfizer brought some short-term uncertainty to markets, additional optimism surrounding other companies vaccines helped to keep the bullish trend.
Employment Data
New claims decreased by a sizeable margin last week to 712,000. This drawdown came as COVID cases continue to wreak havoc across the nation. Pandemic unemployment assistance saw a drop of over 30,000 to 288,000. This brings the combined total of new claims to one million. While this drop is positive sign, new claims remain nearly 800,000 above where they stood one year ago.
Continuing claims came in at 5.52 million. This represented a drop of over 500,000 and the tenth straight week of falling claims.
Total Claims for Unemployment from all programs decreased to 20.16 million. Pandemic unemployment assistance continues to be the main driver of the drop in claims.
However, the rate of change in total unemployment has decreased significantly over the past month. Previously we were seeing a drop of over one million each week, compared to the 350,000 decline this week. This raises the concern of a prolonged recession if the employment recovery momentum continues to slow.
November’s jobs report came in unexpectedly poor. Non-farm payrolls showed a creation 245,000 jobs, significantly less than the 440,000 expected[1]. This was down from the 610,000 jobs added in October. As COVID lockdowns continue to go into effect across the country[2], the jobs market is beginning to take a major hit. Even as vaccines begin to be approved, the distribution period is likely to take many months[3]. Until then, the jobs recovery will have many obstacles to overcome.
The unemployment rate came in at 6.7%, falling in line with analyst expectations. While the jobs report itself was a concerning sign, it did help to shed light on the millions of struggling Americans. With a second stimulus package on the table, many analysts expect that this report will provide momentum towards a larger deal[4]. Even with the worsening economic situation, the stock market jumped on Friday in anticipation of an imminent deal.
Looking beyond the headlines reveals an even more concerning data point. The unemployment rate at 6.7% appears to be a solid reading, however this does not account for the drastically shrinking labor force. Despite bouncing back from the initial collapse in March, the labor force participation rate remains well below pre-pandemic levels.
Another way of viewing this is by looking into the total number of employed persons on a long-term chart. After a setback from the 2008 Great Recession, the COVID pandemic brought total employment back even further.
Additional Economic Data
Unfortunately, its not just the jobs market that is struggling. A recently released report from the OCED Economic Outlook presented a worrying global GDP outlook. Even with multiple promising vaccine candidates and immense stimulus on deck, there is no doubt that the economy has extensive permanent damage. The outcome of this will likely be a lengthy and painful road to recovery for the global economy.
Another area of concern is in the permanent damage done to small businesses. The chart below displays the lowest reading of the Small Business Jobs Index in over 15 years. Unlike many other areas of the economy, small businesses have failed to bounce back.
Instead, the situation for small businesses has continued to get worse. A recent poll by Alignable indicates that 48% of small businesses are in risk of closing for good.
Articles of Interest
Economic Disconnect – At the same time that the stock market is hitting all time highs, millions of Americans are struggling to support their families. Even with a large stimulus package on deck, the economy has massive obstacles to overcome. Check out this article for a deeper look the economic problems a stimulus package will not solve.
Stimulus Update – For the first time in almost six months of negotiating, law makers on both sides of the aisle appear to agree on the size of a second stimulus package. Check out this article for the most recent update on where congress stands on passing a new stimulus deal.
Cyclical Rotation – With a COVID vaccine likely coming soon, the market rotation has begun. Stocks that performed well during the work from home stage are now underperforming the cyclical industries that were beaten up when the shutdowns began to take effect. Check out this article for more details on the optimist outlook given to the stocks who struggled most in 2020.
Non-Financial Story of the Week
We had a pretty amazing weather weekend in Pacific NW and our family got out a couple of times on walks and hikes. This shot was from our Saturday morning walk around Pt Defiance Park in Tacoma. I have definitely recognized the need to get out and be in nature, for us and our kids! At the end of this walk, there was a nice surprise for the kids with a set of slides that go down a large steep hill at the Pt Defiance Ferry Dock!
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Bottom Line
The market continues to surge higher as sentiment remains positive for a strong recovery in 2021. However, the unfortunate result of this is a growing divergence between the Wall Street and Main Street. The reality of the situation is that more than 20 million Americans remain unemployed and in dire need of support. Likewise, many of the small businesses that have struggled greatly during the pandemic will be forced to close as customers turn to cheaper prices at large corporations. Nonetheless, even bleak economic data in Q1 and Q2 of 2021 will show historical growth in comparison to the previous years data. With this to look forward to, the market is well on its way to finish the volatile year on a strong note.
If you have any questions about any of the information in this week’s blog or what you should be doing right now with your personal and business planning, do not hesitate to reach out to us by sending an email to info@konvergentwealth.com or calling us at 253-236-7000.
[1] https://www.cnbc.com/2020/12/04/jobs-report-november-2020.html
[2] https://thehill.com/changing-america/well-being/medical-advances/528792-us-hits-new-daily-covid-19-case-record-as-states
[3] https://www.msn.com/en-us/news/us/vaccines-offer-hope-for-end-to-pandemic-but-brutal-months-lie-ahead/ar-BB1bC6Q1
[4] https://www.reuters.com/article/global-markets-int/dollar-hits-two-and-a-half-year-low-on-risk-on-trades-shares-buoyant-idUSKBN28D3K9