Weekly Update

Weekly Update

for Week Ending December 11th, 2020

Global Equities: Another week of failed negotiations for a new round of fiscal relief has caused major US equity indices to pull back from all-time highs. Politics has remained front-and-center with COVID relief not the only sticking point, as Congress was only able to pass a one-week extension on a new funding agreement in order to avoid a government shutdown. The disfunction facilitated around a -1% pull-back for S&P 500, while similarly “across the pond”, the UK and the EU are dancing with the deadline of a hard Brexit – adding additional risks to global markets. International developed markets fared slightly better than their US counterpart, though were still in the red by -0.5% despite the announcement of additional stimulus efforts from the European Central Bank. Broad emerging markets side-stepped many risks felt in the developed world and outperformed by ending the week down around a quarter of a percent.

Fixed Income: The heightened anxiety felt in risk assets also manifested itself in US interest rates, which retreated from recent highs during the week. Additionally, the expanded quantitative easing in Europe perhaps foreshadows expanded measures back in the US, as the yield on the 10-Year US Treasury Note retreated below 0.9% after beginning the week close to 1.0%. This obviously benefitted Treasury bond prices and to a lesser-extent, investment grade corporate bonds. Broad high yield bond indices were slightly negative on the week, while Refinitiv Lipper reported relatively negligible inflows into high yield funds during the week ended 12/9 and $2.9 billion of inflows into investment grade.

Commodities: Measures of road travel and freight transportation indicated increased global demand for oil, boosting oil prices despite the soft week for risk assets. Global demand remains considerably below pre-pandemic levels, however, but the signs of improvement are welcome to remaining producers as supply experiences continued suppression from OPEC members. The West Texas Intermediate crude oil benchmark finished the week higher by 1.0%, ending near $46.65 per barrel, while the International Brent Crude benchmark performed similarly while climbing above $50 per barrel. Gold prices were choppy in weekly trading, with the front contract changing only slightly from $1,840 per ounce.


Initial Jobless Jump: Initial Jobless Claims spiked back above 800k, to 853k, during the week ended 12/5 according to the US Department of Labor. This, the highest reading since mid-September, was significantly higher than the 730k that had been expected and the upwardly-revised 716k from the prior week. Continuing claims also increased for the first time since August as several locations begin renewed restrictions on economic activity to try and alleviate strains on hospital capacity which also normally tend to rise in winter months. Expanded federal unemployment benefits are set to expire near year-end and exacerbate the so-called K-shaped recovery, which describes the disparity amongst Americans who are most and least affected by the pandemic.

Consumer Sentiment High: The US Producer Price Index (PPI) was in line with consensus estimates in November, rising 0.1% for the month and 0.8% from the same period one year ago. The nationwide rise in COVID19 cases and subsequent restrictions is believed to have kept a lid on prices during the month, restraining labor productivity and business demand for services. The prices of goods were responsible for the modest climb in headline PPI, as the segment rose by 0.4% compared to the no change in the measure for services.

Producer Prices Subdued: Census Bureau estimates for construction spending increased by 1.3% in October versus September, and a full 3.7% higher than a year ago. Both, public and private construction were on the rise by roughly the same amount, with the latter making up ¾ of the total estimated $1.094 trillion during the period. The growth is reassuring considering the pandemic, however, continued growth in the residential sector is needed for the market with tight supply. Potential home buyers are still out in force, according to the Mortgage Bankers’ Association, who reported 9% week-on-week growth in purchase mortgage applications.


The Chart of the Week is a 6-month chart of the iShares 20+ Year Treasury Bond ETF (TLT), which represents performance of long-term Treasury bonds and moves inversely of long-term interest rates. TLT has risen back to, and may again experience resistance at, its 50-day moving average (blue line) if interest rates resume their trend since early-August. We currently have no tactical exposure to TLT, though remain appropriately invested in long-term Treasuries within buy-and-hold strategic portions of Hanlon All-Weather Models.

Chart data provided by stockcharts.com. Commentary and opinions are those of Hanlon Investment Management.


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