NOVEMBER 2020 MARKET UPDATE
Thrivent Asset Management Contributors to this report: Mark Simenstad, CFA, Chief Investment Strategist; Steve Lowe, CFA, Vice President, Mutual Funds-Fixed Income; John Groton, Jr., CFA, Director of Administration and Materials & Energy Research; Matthew Finn, CFA, Head of Equity Mutual Funds; and Jeff Branstad, CFA, Senior Investment Product Manager
After reaching an all-time high in August, the S&P 500® dipped for the second straight month in October – but remained in positive territory year-to-date. The index was down 2.77% in October but was still up 1.21% year-to-date.
Gross domestic product (GDP) growth in the 3rd quarter recovered much of the lost ground from the 2nd quarter, as more businesses returned to operation and pent-up demand from consumers drove strong sales in several key areas. According to the U.S. Department of Commerce, GDP grew at a record 33.1% annualized rate in the 3rd quarter after sinking 31.4% in the 2nd quarter. For the year, GDP is still down 3.5%.
Consumption of durable goods was up 12.7% from a year earlier in the 3rd quarter, as spending on cars, furniture, and recreational goods and vehicles picked up after slumping in the 2nd quarter. Spending on nondurable goods was up 3.9% from a year earlier, as consumers increased spending at grocery stores in lieu of dining out.
But spending on services remained depressed for the third straight quarter. Services expenditures were down 7.2% in the 3rd quarter versus a year earlier, after being down 14.0% in the 2nd quarter and down 1.1% in the first quarter. The drop in spending was due to a continued lag in the use of transportation services, recreational services, health care, and food services.
Disposable personal income decreased 13.2% in the 3rd quarter, as federal government-funded stimulus pay-outs dried up – after a 2nd quarter increase of 44.3% that was driven by a massive Congressional stimulus package.
The S&P 500 Index was down 2.77% in October – from 3,363.00 at the end of September to 3269.96 at the October close. The total return of the S&P 500 (including dividends) was -2.66% for October. Year to date, the total return of the S&P 500 was 2.77%. (The S&P 500 is a market-cap-weighted index that represents the average performance of a group of 500 large capitalization stocks.)
The NASDAQ Index was also down in October for the second straight month. It was down 2.29% in October but was still up 21.61% year to date. (The NASDAQ – National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.)
Retail sales have continued to recover, with stores and restaurants reopening across the country. According to the Department of Commerce retail report issued October 16, retail sales were up 1.9% in September from the previous month, and up 5.4% from September 2019. Total sales for the three-month period of July through September were up 3.6% from the same period a year ago.
The increase in retail sales has been led by a massive increase in online sales. Non-store sales (primarily online) were up 23.8% from a year earlier in September, although online sales growth has begun to level off, with just a 0.5% increase from the previous month.
Automobile sales have also been a key driver in the retail market. Automotive sales were up 3.6% from the previous month in September and up 10.9% from a year earlier. Home improvement projects during the pandemic have propelled growth in the building materials and garden supplies category, with sales up 0.6% from the previous month and 19.1% from a year earlier. Food and drinking establishments have shown signs of a mild recovery, with sales up 2.1% for the month, but still down 14.4% from a year earlier. Department store sales have also shown signs of life, up 9.7% from the previous month, although still down 7.3% from a year earlier.
Although weekly unemployment claims have continued to average nearly 800,000 workers, the overall unemployment rate has continued to decline, as previously laid-off workers have begun returning to their jobs. According to the Department of Labor Employment Situation Report issued October 2, the unemployment rate was 7.9% – the fifth consecutive month that the unemployment rate had dropped. The unemployment rate showed signs of improving further during October, although it remains well above pre-pandemic levels.
The S&P 500 Utilities sector was up 5.04% in October, while most of the 11 market sectors declined for the month. Communications Services, up 0.79%, was the only other sector to post a gain in October. The biggest loser was Information Technology, down 5.10%, although it still leads all sectors year-to-date, up 22.13%. Energy continued to flounder, down 4.41% for the month – and down 50.38% for all of 2020.
The chart below shows the results of the 11 sectors for the past month and year-to-date:
The yield on 10-year U.S. Treasuries reached its highest level since June amidst investor optimism that the economy was on the road to recovery. The yield had dropped precipitously in March when the Federal Reserve cut the Fed funds rate to a range of 0 – 0.25% in an effort to buoy the economy. The 10-year Treasury yield moved up from 0.68% at the September close to 0.85% at the end of October. But it remains well below the 2019 year-end rate of 1.92%.
Oil prices continued their downward spiral in October, as West Texas Intermediate, a grade of crude oil used as a benchmark in oil pricing, plunged 11.01% for the month – from $40.22 per barrel at the end of September to $35.79 at the September close. Oil prices have been severely depressed with travel by air and auto curtailed by the COVID-19 pandemic. Year-to-date, the price is down 41.39%.
A steep drop in the final week of October was attributed to two key factors – fears over rising COVID-19 cases in the U.S. and Europe and concern among oil traders that OPEC and other leading oil-producing nations may not continue their production cuts next year. Already facing an over-supply due to the decline in travel around the world, an increase in global oil production would likely further exacerbate the supply-demand imbalance.
International equities moved lower in October, as the pandemic continued to affect businesses throughout Europe. The MSCI EAFE Index, which tracks developed-economy stocks in Europe, Asia and Australia, was down 4.06% in October, and is down 12.61% through the first 10 months of 2020.
Media contact: Samantha Mehrotra, 612-844-4197; samantha.mehrotra@thrivent.com
All information and representations herein are as of 11/03/2020, unless otherwise noted.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Thrivent Asset Management, LLC associates. Actual investment decisions made by Thrivent Asset Management, LLC will not necessarily reflect the views expressed. This information should not be considered investment advice or a recommendation of any particular security, strategy or product. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.
Any indexes shown are unmanaged and do not reflect the typical costs of investing. Investors cannot invest directly in an index.
Past performance is not necessarily indicative of future results.
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