The market lost some ground as rising COVID cases overshadowed positive vaccine results from Moderna. Economic data was positive for the most part, but a rise in new claims could be an early indication of weakness in the employment recovery. Find all of this plus more on the growing main street vs wall street divergence in this week’s @Konvergent Wealth Partners Market Update Blog.  

Here are the top three things we’re covering this week’s blog:

The Market

The S&P was down -0.77% on the week. Volatility continued to decrease with the election outcome nearly confirmed and another positive COVID vaccine on the cusp of approval. For the second straight week, the market jumped on Monday and faded throughout the session. The market continued its rotation out of major cap tech and into cyclical stocks that have underperformed so far this year.

Economic Data

New claims increased last week and came in at 742,000. This came as a change of pace and could be an initial sign of increasingly poor data ahead. Pandemic unemployment increased slightly as well bringing the total new claims reading to over 1.06 million. With COVID cases surging and lockdowns on the horizon, the stability of this number will be critical for the overall jobs market.

Continuing claims decreased last week to 6.372 million. This represented the ninth straight week of decreasing claims.  The reality is, even with increasing new claims, there are many more that are falling off of these programs due to their expiration of benefits, not because they are necessarily getting back to work.

Total Claims for Unemployment from all programs decreased last week to 20.3 million. Following the same theme as many of the previous weeks, the main catalyst to this drop was a major decrease in regular state and pandemic unemployment assistance claims. Since total claims come in on a two-week delay, the recently put in place COVID shutdowns may not be shown in the data yet.

A data point that is becoming increasingly concerning is the amount of people flowing from temporary to permanent job losses. Over the past few months we have begun to see a spike in the median weeks of unemployment and those unemployed for over 27 weeks. Even with promising vaccine headlines providing some hope, the likelihood is high that we still have awhile before regular life resumes. Until then, the winter will continue to grow darker and darker for a large portion of American workers.

Existing home sales increased to 6.85 million in October. This was significantly above the expectations of 6.47 million. With a large portion of the economy reporting recessionary data, the housing market strength has been an unexpected surprise. However, the available home inventory fell 19.8% in October[1]. If the amount of homes on the market continues to fade, the sales will eventually cool off as well.

Bubble Concerns

Through positive vaccine study results, decreasing political tension and the opportunity for major stimulus ahead the market has risen back to all time highs in the past few weeks. Many estimates indicate that the beginning of 2021 will be a data comparison paradise as even mediocre economic data will appear historically positive compared to the abysmal prior year. Nonetheless, the macroeconomic situation remains a major concern.

Consider the red-hot home market discussed in the previous section. While many are concerned by the level equities are trading above earnings, home values are currently significantly closer to their all-time highs.

Focusing more specifically on stocks, we can clearly see the disconnect between the market and economy. While the S&P 500 is generally a solid representative of the market as a whole, a large majority of the price action is caused by the top 5-10 companies. Also known as the F.A.A.M.G. stocks, these companies make up an astronomical portion of the overall market share.

As a result, strong returns in these companies can make the market appear considerably stronger than it is. The chart below displays the forward P/E ratios of the top hedge fund held companies compared with the overall S&P 500. After a massive melt up over the past summer, the VIP companies now have a forward P/E highly extended above the over market.

Another way to view this is by comparing the median price revenue ratios. In this chart the top 10% is clearly extended well above the bottom 90%. Even more distressing, the current ratios are spiking towards a level not seen since the Dot Com crash.

One of the main contributors towards the massive run was the CARES Act stimulus. This substantially increased the Fed balance sheet and caused economists around the world to fear a spike in inflation. Instead, the Fed assistance led to a steep k-shaped recovery with the stock market hitting all time highs while economic data remains at historically horrendous levels. With a second stimulus bill on the table, many are fearing that the market is now heavily reliant on Fed spending instead of traditional fundamentals.

To put this into perspective, the Fed is currently carrying a significantly larger deficit than ever before.

Articles of Interest

Stimulus Update – With the year end fast approaching, negotiators are still struggling to come to an agreement on a second stimulus package. But with COVID cases on the rise, more pressure than ever is being placed on Congress to provide some financial assistance to struggling Americans. Check out this article for the latest on where each side stands.

COVID Vaccines – After a historic effort by government officials and health workers over the past nine months, news broke just over two weeks ago that a successful vaccine may be approved soon. Unfortunately, little is known about the long term vaccine effectiveness and any consequences that could come from the injection. Check out this article for additional insight into the information known at this point.

Fed Emergency Spending Cut – In a rather surprising move, Treasury Secretary Steve Mnuchin announced on Tuesday that he would reduce the level of emergency Federal Reserve spending. Check out this article for a detailed explanation of the rare exchange.

Social Media Post of the Week

  • We did our first Facebook Livestream and Podcast this week!  We will be making this a regular event and look to expand the communication and content we are getting out to you in the coming weeks and months!

Don’t forget to follow us on your favorite Social Media Feeds!!

Non-Financial Story of the Week

As we approach Thanksgiving later this week, I wanted to express my gratitude for you, our clients and families that we have the opportunity to serve each day.  I feel lucky to be in an industry where we have the opportunity to make an impact on so many people. This has been a challenging year in many ways and we have had to change and adapt our business to continue to serve you and bring value and we are working extremely hard to identify ways to make our relationship even more valuable.

I also want to express gratitude for our staff and our families that have worked hard to support our efforts this year.

I wish you all a Happy Thanksgiving! I know many are having to make decisions on how to celebrate this year given what we are going through. Whatever that looks like, know that we are thinking of you and thankful for our relationship with you!

Bottom Line

The economy remains in limbo with stocks hitting all time highs while economic data suffers. Despite surging COVID cases, the market – being very forward looking – appears more focused on the potential life changing vaccine. After a historically terrible year of data, early 2021 will likely support market gains with strong year over year economic growth and additional stimulus payments.

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.bloomberg.com/news/articles/2020-11-19/u-s-existing-home-sales-unexpectedly-rise-to-highest-since-2005

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