Abundance of Data Leads to Diverging Results for Stocks…..

U.S. stocks closed mixed on a busy day, as the markets appeared to catch their breath following a torrid rally that saw the Dow top 30,000 for the first time. Prior to today, COVID-19 vaccine optimism and some much needed clarity on the make-up of President-elect Joe Biden’s administration provided the ballast for the recent rally that leads into tomorrow’s Thanksgiving break. Economic data was the main focus as the markets sifted through a wide range of data that was pulled forward ahead of the holiday, headlined by a disappointing jobless claims report, mixed personal income and spending data, and a stronger-than-expected read on durable goods orders. Moreover, the minutes from the November FOMC monetary policy meeting were highlighted by much discussion on tweaking the asset purchase program, however no changes in terms of pace and composition were ultimately made. Treasury yields were mostly flat, and the U.S. dollar slid. Gold turned lower and crude oil prices were higher. Gap posted mixed Q3 results, while HP topped revenue forecasts, VMware beat expectations and raised its guidance, and a report surfaced that Dow member Salesforce has been in talks to potentially acquire Slack Technologies. Asia and Europe closed mixed.

The Dow Jones Industrial Average fell 174 points (0.6%) to 29,872, the S&P 500 Index was down 6 points (0.2%) at 3,630, and the Nasdaq Composite increased 58 points (0.5%) to 12,094. In moderate volume, 966 million shares were traded on the NYSE and 4.4 billion shares changed hands on the Nasdaq. WTI crude oil traded $0.80 higher at $45.71 per barrel and wholesale gasoline added $0.02 to $1.27 per gallon. Elsewhere, the Bloomberg gold spot price was down $1.07 at $1,806.53 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—ticked 0.3% lower to 91.94.

Treasury yields flat amid a flood of data…..

Weekly initial jobless claims came in at a level of 778,000 for the week ended November 21st, above the Bloomberg estimate of 730,000 and the prior week’s upwardly-revised 748,000 level. The four-week moving average rose by 5,000 to 748,500, while continuing claims for the week ended November 14th fell by 299,000 to 6,071,000, above estimates of 6,000,000. The four-week moving average of continuing claims dropped by 438,000 to 6,615,250.

The second look (of three) at Q3 Gross Domestic Product  the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of expansion of 33.1%, unrevised from the first release and matching forecasts. Q2’s figure was unadjusted at a 31.4% plunge. Personal consumption was revised to a 40.6% increase, below expectations of an adjustment to a 40.9% jump, from the initially-reported 40.7% increase. Q2 consumption was unrevised at a 33.2% drop

On inflation, the GDP Price Index was unrevised at a 3.6% rise, matching estimates, while the core PCE Index, which excludes food and energy, was also unrevised at a 3.5% gain, in line with forecasts.

October preliminary durable goods orders rose 1.3% month-over-month (m/m), versus estimates of a 0.8% rise and compared to September’s upwardly-revised 2.1% increase. Ex-transportation, orders increased 1.3% m/m, versus forecasts of a 0.5% gain and compared to September’s favorably-adjusted 1.5% rise. Moreover, orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, were up 0.7%, compared to projections of a 0.5% rise, while the prior month’s figure was upwardly-revised to a 1.9% increase.

Personal income declined 0.7% m/m in October, versus forecasts of 0.1% dip, and following September’s downwardly-revised 0.7% gain. Personal spending rose 0.5%, above the estimated 0.4% increase and versus the prior month’s negatively-adjusted 1.2% advance. The October savings rate as a percentage of disposable income was 13.6%. The PCE Deflator was flat m/m, matching expectations and compared to September’s unadjusted 0.2% rise. Compared to last year, the deflator was 1.2% higher, in line with estimates and below September’s unadjusted 1.4% gain. Excluding food and energy, the PCE Core Index was also unchanged m/m, in line with expectations and versus September’s unrevised 0.2% rise. The index was 1.4% higher y/y, matching estimates and south of September’s upwardly-adjusted 1.6% gain.

The November final University of Michigan Consumer Sentiment Index was revised lower to 76.9, versus expectations to match the preliminary reading of 77.0. The downward revision came as a slight upward adjustment to the current conditions portion of the survey was more than offset by a downward revision to the expectations component. The overall index was lower versus October’s 81.8 level as a rise in the assessment of current conditions was overshadowed by a drop in expectations. The 1-year inflation forecast rose to 2.8% from October’s 2.6% rate, and the 5-10 year inflation forecast ticked higher to 2.5% from the prior month’s 2.4% pace.

New home sales declined 0.3% m/m in October to an annual rate of 999,000 units, versus forecasts calling for a rate of 975,000 units, and compared to September’s upwardly-revised 1,002,000 unit level. The median home price was up 2.5% y/y at $330,600. New home inventory remained at September’s rate of 3.3 months of supply at the current sales pace. Sales in the Northeast and Midwest rose m/m, but sales in the South and West declined. Sales in all four regions were sharply higher y/y. New home sales are based on contract signings, offering a timelier read on housing activity compared to the larger contributor of existing home sales, which are based on closings.

The advance goods-trade balance showed that the October deficit widened by a slightly smaller amount than expected, coming in at $80.3 billion, versus estimates calling for it to increase to $80.4 billion from September’s unadjusted shortfall of $79.4 billion.

Preliminary wholesale inventories rose 0.9% m/m for October, compared to expectations of a 0.4% gain, and versus September’s favorably-revised 0.7% rise.

The MBA Mortgage Application Index rose by 3.9% last week, following the prior week’s 0.3% dip. The increase came as a 4.5% gain in the Refinance Index was met with a 3.5% rise in the Purchase Index. The average 30-year mortgage rate fell 7 basis points (bps) to 2.92%.

In afternoon action, the Federal Reserve released the minutes from its November monetary policy meeting, where it kept its accommodative policy intact and continued to advocate for fiscal relief. The report showed Committee members felt current monetary policy continues to be appropriate at this time, citing a U.S. economy that is “well below” pre-pandemic levels, despite a pick-up in recent months, as several participants expressed concern about the absence of additional fiscal support. However, the highlight of the document was the discussion on the Fed’s on-going asset purchase program, in which Members discussed a wide range of potential adjustments. Ultimately, no immediate changes were made as the report noted, “participants judged that immediate adjustments to the pace and composition of asset purchases were not necessary at this time.”

Treasuries were mostly flat, with the yields on the 2-year note and 10-year note little changed at 0.16% and 0.88%, respectively, while the yield on the 30-year bond rose 2 bps to 1.62%.

©2020 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.

Schwab Center for Financial Research (“SCFR”) is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.