Market Update 13/11/2020
The S&P 500 closed at a new record high and global equities posted a second week of gains following news of progress in developing a COVID-19 vaccine. Stocks surged on Monday after Pfizer and BioNTech announced that their vaccine had 90% effectiveness in their large study, triggering a wave of hope and optimism that a medical solution will address the health crisis and accelerate the economic recovery.
Cyclical sectors that have been negatively impacted by the pandemic and are more sensitive to the reopening of the economy outperformed last week, while sectors that have benefited from the pandemic underperformed. A similar rotation occurred across asset classes, with small-cap and international stocks outpacing U.S. large-caps.
US equities had risen 0.8% for the week, whilst US technology stocks, up until now the big beneficiaries of the pandemic, fell 1.6%. Whilst European indices, which are much more cyclical in their makeup, rose 5.1%, with European smaller companies rising a massive 7.1%. UK indices, which have a relatively high weighting to both the financial sector and energy, rose 6.9%, with mid-cap stocks rising 8.8%. Japanese equities rose 2.7%, whilst Australian stocks gained 3.5%. The wider Asia Pacific region, excluding Japan, rose a modest 0.7%, having already been one of the better-performing regions year to date.
The news on the vaccine led Government bonds and gold to sell-off. US Treasury yields, which move inversely to price, rose as high as 0.98%, although they have since retreated and are trading at 0.88%. Both German bund and UK gilt yields also rose over the week, now trading at -0.55% and 0.34% respectively. Whilst gold fell by 3.8%, now trading at $1,878 an ounce. The gold mining sector, which is a geared play on the precious metal, fell by 9.3% over the week, making it one of the hardest-hit sectors.
The headline moves in equity indices masked the huge dispersion in returns at stock level. Rolls-Royce, the manufacturer of jet engines for commercial aeroplanes, rose by 44% on Monday, its biggest ever one day gain. Whilst stocks that have benefitted from work at home lockdowns such as Zoom, the video conferencing technology company and Ocado, the online supermarket, suffered sharp share price falls, both losing close to 15% in value on Monday at their most extreme moment. Some of these moves unwound later in the week, but nonetheless, cyclical stocks remained very much ahead by the end of the week.
Energy stocks were also a big winner over the week as crude oil jumped in price, with Brent crude rising 9.4%, now trading at $43.1 a barrel and US WTI (West Texas Intermediate) $40.6. Similarly, the energy equity sector rose by over 12% for the week.
Important economic data being released this week include retail sales and industrial production on Tuesday, building permits on Wednesday, and the leading index on Friday.