Equities Pick Up Where They Left Off in November, Closing Higher…..
U.S. stocks built on the sharp rally seen in November, as the final month of 2020 began. Fiscal relief was back in focus today as Fed Chair Jerome Powell continued to stress its importance in his Congressional testimony alongside Treasury Secretary Steven Mnuchin, who was also reportedly set to resume talks with House Speaker Nancy Pelosi today. Additionally, several positive manufacturing reports today and the lingering optimism from recent COVID-19 vaccine news helped to broaden out participation in economically-sensitive sectors and issues that struggled this year. In corporate news, Zoom Video Communications posted strong Q3 results, but sustainability concerns on the Street weighed on its shares, while Exxon Mobil slashed its capital expenditure plans and announced a large write-down, but offered hope that its dividend will be maintained. Treasury yields moved noticeably higher as bond prices dropped, and the U.S. dollar continued to see pressure. Gold rebounded and crude oil prices fell, as OPEC and its allies, known as OPEC+, delayed talks on production cuts to later this week. Asia and Europe both gained ground.
The Dow Jones Industrial Average rose 185 points (0.6%) to 29,824, the S&P 500 Index increased 41 points (1.1%) at 3,662, and the Nasdaq Composite advanced 156 points (1.3%) to 12,355. In heavy volume, 1.0 billion shares were traded on the NYSE and 6.4 billion shares changed hands on the Nasdaq. WTI crude oil was $0.79 lower at $44.55 per barrel and wholesale gasoline lost $0.02 to $1.22 per gallon. Elsewhere, the Bloomberg gold spot price gained $37.46 to $1,814.41 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—decreased 0.7% to 91.21.
Manufacturing data continues to show solid growth, Fed Chief and Treasury Secretary testify…..
The November Institute for Supply Management (ISM) Manufacturing Index showed manufacturing slowed slightly but remained comfortably in expansion territory (a reading above 50). The index declined to 57.5 from October’s unrevised 59.3 level, and versus the Bloomberg consensus estimate of 58.0. The larger-than-expected deceleration came as new orders and production growth slowed, and employment fell back into contraction territory. Prices remained elevated.
The ISM said, “The manufacturing economy continued its recovery in November. Survey Committee members reported that their companies and suppliers continue to operate in reconfigured factories, but absenteeism, short-term shutdowns to sanitize facilities and difficulties in returning and hiring workers are causing strains that will likely limit future manufacturing growth potential.” However, the ISM added that panel sentiment is optimistic, improving compared to October.
The final November Markit U.S. Manufacturing PMI Index was unrevised from the preliminary level of 56.7, matching forecasts, and above October’s 53.4 level. A reading above 50 denotes expansion. The release is independent and differs from ISM’s report, as it has less historic value and Markit weights its index components differently, while it surveys a wider range of companies.
Construction spending rose 1.3% month-over-month (m/m) in October, versus projections of a 0.8% gain, and following September’s downwardly-revised 0.5% decrease. Residential spending grew 2.9% m/m but non-residential spending was flat.
Treasuries fell as the yield on the 2-year note increased 2 basis points (bps) to 0.17%, the yield on the 10-year note rose 8 bps to 0.92%, and the 30-year bond rate added 9 bps to 1.66%.
Finally, Federal Reserve Chairman Jerome Powell began his two-day Congressional testimony, accompanied by Treasury Secretary Steven Mnuchin, in front of the Senate Banking Committee. The two discussed the $2.2 trillion economic stimulus bill, known as the CARES Act, which was put in place in March and aimed at combating the severe disruption of the COVID-19 pandemic.
Powell told lawmakers that for the medium term, the recent news on the vaccine front is very positive, but the rise in new COVID-19 cases, both here and abroad, is concerning and could prove challenging for the next few months. Powell’s prepared remarks did not signal any new measures that the Central Bank will take, with the last two-day monetary policy meeting of 2020 set to conclude on December 16th, but he did reiterate that it will use all of its tools to help the economy recover. The markets are paying close attention to the Q&A session that is ensuing, with Powell continuing to pound the table on the need for further fiscal relief. Mnuchin continued to urge lawmakers to repurpose nearly $455 billion in unused funds to deploy targeted fiscal relief. The testimonies come after the Treasury decided last month to let some of the Fed’s emergency lending programs expire at year’s end, fostering some disagreement between Powell and Mnuchin.
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