Each of the major indices rose more than 2.0% this shortened week and set new record highs, including the Dow Jones Industrial Average (+2.2%), which crossed above 30,000 for the first time ever. The Russell 2000 rose 3.9%, the Nasdaq Composite rose 3.0%, and the S&P 500 rose 2.3%.
Value, cyclical, and small-cap stocks retained their leadership roles in this part of the bull market. The S&P 500 energy sector rose 8.5%, and the financials sector rose 4.6%. Every other sector, except real estate (-0.4%), ended the week with gains.
November business activity growth accelerates unexpectedly to begin the shortened week
The preliminary Markit U.S. Manufacturing PMI Index for November surprisingly increased to 56.7 from October's unrevised 53.4 figure, unexpectedly moving further into expansion territory denoted by a reading above 50. The Bloomberg consensus estimate called for the index to dip to 53.0. The preliminary Markit U.S. Services PMI Index showed output for the key U.S. sector also unexpectedly accelerated, rising to 57.7 from October's 56.9 figure, and compared to forecasts of a decline to 55.0. A reading above 50 denotes expansion.
Consumer confidence declines
The Conference Board's Consumer Confidence Index (chart) declined more than expected to 96.1 from October's upwardly-revised 101.4 level, and versus the Bloomberg consensus estimate calling for a decline to 98.0. The softer-than-expected read came as the Present Situation Index portion of the survey dipped but the Expectations Index of business conditions for the next six months fell noticeably. On employment, the labor differential—consumers’ appraisal of jobs being "plentiful" minus being "hard to get"—ticked further into positive territory, nudging up to 7.2 from the 7.1 level posted in October.
Existing home prices jump
The S&P CoreLogic Case-Shiller National Home Price Index jumped 1.4% in September, the most since March 2013. It followed a similar increase in the prior month, making it the biggest back-to-back gain since March 2005. It reflects strong housing demand, boosted by record low mortgage rates, pent-up housing market activity from spring, and increased interest in suburban and larger homes as a result of the pandemic. Home price gains were widespread across the country, with all 19 metro areas with September data posting increases.
Regional manufacturing reports miss expectations
Weekly initial jobless claims higher than expected
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.
Q3 GDP growth remains at 33.1%
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.
Durable goods orders rise
EIA Petroleum Inventories: Crude -0.8M barrels vs. +0.1M consensus, +0.8M last week.
EIA Gasoline +2.2M barrels vs. +0.6M consensus, +2.6M last week.
EIA Distillates -1.4M barrels vs. -1.6M consensus -5.2M last week.
The overall expansion was the fastest in over five-and-a-half years, as both manufacturers and service providers indicated a steeper upturn in output. The month also saw a survey record rise in employment and an unprecedented increase in prices, the latter in part linked to a record incidence of supply chain delays.
Consumer confidence declines
The Conference Board's Consumer Confidence Index (chart) declined more than expected to 96.1 from October's upwardly-revised 101.4 level, and versus the Bloomberg consensus estimate calling for a decline to 98.0. The softer-than-expected read came as the Present Situation Index portion of the survey dipped but the Expectations Index of business conditions for the next six months fell noticeably. On employment, the labor differential—consumers’ appraisal of jobs being "plentiful" minus being "hard to get"—ticked further into positive territory, nudging up to 7.2 from the 7.1 level posted in October.
The S&P CoreLogic Case-Shiller National Home Price Index jumped 1.4% in September, the most since March 2013. It followed a similar increase in the prior month, making it the biggest back-to-back gain since March 2005. It reflects strong housing demand, boosted by record low mortgage rates, pent-up housing market activity from spring, and increased interest in suburban and larger homes as a result of the pandemic. Home price gains were widespread across the country, with all 19 metro areas with September data posting increases.
On a y/y basis, the National Index advanced 7.0%, the fastest pace since May 2014. That was higher than the 6.2% y/y and 6.6% y/y gains in the 10-city and 20-city composite indexes, respectively, which implies stronger demand for homes outside of large metro areas. Separately, the FHFA Purchase-Only House Price Index surged a record 1.7% in September, and was up 9.1% y/y, the most since February 2006. Real house prices were up 6.5% y/y in Q3, the most in 15 years.
Homes sales decline but beat expectations
New home sales unexpectedly declined 0.3% m/m in October to an annual rate of 999,000, 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.
New home sales unexpectedly declined 0.3% m/m in October to an annual rate of 999,000, 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.
Regional manufacturing reports miss expectations
The Richmond Fed Manufacturing Activity Index declined more than expected but remained in expansion territory (a reading above zero) for this month. The index fell to 15 from October's record high of 29, and versus forecasts calling for the figure to decline to 20.0. New orders, shipments and employment all declined but continued to depict growth.
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.
Durable goods orders rise
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.
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.
Mortgage applications fall
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.
Mortgage applications fall
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%.
Consumer spending growth slows, as personal income falls
Personal income fell 0.7% in October, worse than the consensus of -0.1%. While most sources of income posted gains in early Q4, those were overwhelmed by a 9.8% slide in net government transfers. Transfers had spiked earlier this year with the passage of the CARES Act and other federal assistance programs, but most are scheduled to expire at the end of 2020. Their share of personal income has receded from a record high of 24.9% in April to 12.1% now, but that is still higher than at any other time since 1959. In contrast, the income share of worker compensation has rebounded to 59.5%, but it remains historically low. With the unemployment rate still elevated, the waning fiscal stimulus could weigh on consumer spending and the broad economic recovery in the near-term.
Personal consumption expenditures (PCE) rose 0.5% in October, above the consensus of 0.3%, but the smallest gain in the past six months. Real PCE also rose 0.5%, led by more spending on durable goods (mostly recreational goods and vehicles) and services (led by health care). Consumers are tapping personal savings to boost spending. The saving rate fell from 14.6% to 13.6%, which is a fraction of what it was in the spring. However, this rate is still close to its highest level since 1975, which could signal a potential change in consumer behavior toward more saving. While this could benefit economic growth in the long-term, it could act as a drag on the recovery in the short-term. The PCE Price Index and its core were unchanged from the previous month, but both ticked down on a y/y basis. Lack of inflationary pressures ensures continued monetary accommodation from the Fed for the foreseeable future.
Consumer sentiment pulls back
The Reuters/University of Michigan Consumer Sentiment Index edged down 0.1 point from its preliminary November reading to 76.9, about in line with the consensus of 77.0. It was down 4.9 points for the full month, as consumer expectations sank 8.7 points, the most since April. The spike in COVID cases in the fall and a partisan shift after the presidential election weighed on the outlook. Consumers felt slightly better about current conditions.
Consumer spending growth slows, as personal income falls
Personal income fell 0.7% in October, worse than the consensus of -0.1%. While most sources of income posted gains in early Q4, those were overwhelmed by a 9.8% slide in net government transfers. Transfers had spiked earlier this year with the passage of the CARES Act and other federal assistance programs, but most are scheduled to expire at the end of 2020. Their share of personal income has receded from a record high of 24.9% in April to 12.1% now, but that is still higher than at any other time since 1959. In contrast, the income share of worker compensation has rebounded to 59.5%, but it remains historically low. With the unemployment rate still elevated, the waning fiscal stimulus could weigh on consumer spending and the broad economic recovery in the near-term.
Personal consumption expenditures (PCE) rose 0.5% in October, above the consensus of 0.3%, but the smallest gain in the past six months. Real PCE also rose 0.5%, led by more spending on durable goods (mostly recreational goods and vehicles) and services (led by health care). Consumers are tapping personal savings to boost spending. The saving rate fell from 14.6% to 13.6%, which is a fraction of what it was in the spring. However, this rate is still close to its highest level since 1975, which could signal a potential change in consumer behavior toward more saving. While this could benefit economic growth in the long-term, it could act as a drag on the recovery in the short-term. The PCE Price Index and its core were unchanged from the previous month, but both ticked down on a y/y basis. Lack of inflationary pressures ensures continued monetary accommodation from the Fed for the foreseeable future.
Consumer sentiment pulls back
The Reuters/University of Michigan Consumer Sentiment Index edged down 0.1 point from its preliminary November reading to 76.9, about in line with the consensus of 77.0. It was down 4.9 points for the full month, as consumer expectations sank 8.7 points, the most since April. The spike in COVID cases in the fall and a partisan shift after the presidential election weighed on the outlook. Consumers felt slightly better about current conditions.
On a y/y basis, consumer sentiment is off 20.6%, consistent with recessionary fears, which could weigh on consumer spending and growth. Separately, the Bloomberg Consumer Comfort Index slipped 0.2 points last week to 49.6, on a weaker assessment of personal finances and the buying climate. Similar to the Sentiment Index, Comfort is a long way from its pre-recession level, as consumers remain cautious.
Crude inventories fall
Crude inventories fall
EIA Petroleum Inventories: Crude -0.8M barrels vs. +0.1M consensus, +0.8M last week.
EIA Gasoline +2.2M barrels vs. +0.6M consensus, +2.6M last week.
EIA Distillates -1.4M barrels vs. -1.6M consensus -5.2M last week.
Habakkuk 2:2
“Write the vision
And make it plain on tablets,
That he may run who reads it.
3 For the vision is yet for an appointed time;
But at the end it will speak, and it will not lie.
Though it tarries, wait for it;
Because it will surely come,
It will not tarry.
And make it plain on tablets,
That he may run who reads it.
3 For the vision is yet for an appointed time;
But at the end it will speak, and it will not lie.
Though it tarries, wait for it;
Because it will surely come,
It will not tarry.
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