Hello and welcome to this week’s Jones Financial Blog! Our goal at Jones & Associates is to help keep you up to date with interesting current economic/market happenings as well as some proprietary portfolio happenings. Knowledge is power and thought we would share some of ours with you. Enjoy!
All data is for the week ended October 30, 2020.
Key equity indices were down sharply across the U.S., with the S&P 500 dropping 5.62%, the Russell 2000 down 6.21% and the NASDAQ declining 5.50% (1) in the face of rising numbers of positive tests for COVID2. Overseas, the developed markets (MSCI EAFE) also dropped 5.51% while the emerging markets (MSCI EM) were 2.89% lower. The utilities and communications service sectors were the best performers — although down — while technology and industrials were the poorest performers in the U.S. In terms of valuations: The P/E ratio for the S&P 500, when excluding the top five performers year-to-date, is only modestly above its historical average since 1996. (1)
On the heels of strong third quarter economic growth (see below), interest rates crept higher and bond values declined, with the benchmark 10-year treasury yield advancing 3 basis points to 0.88%, the highest rate since late March. (3)
Oil prices dropped 10.2% with West Texas crude ending the week at $35.79 per barrel (4) as the rising number of COVID cases pressured the outlook for demand, particularly for jet fuel.
Economic growth of 33.1% in the third quarter was at the high end of expectations, marking a sharp reversal from the decline of 31.4% in the prior quarter as the U.S. began to recover from the COVID-induced recession over the last few months. Business investment in equipment led the growth with a 70.1% gain while consumer spending shot up by 40.7% due to pent up demand, nearly double the previous record (post WW2). (5)
The Chicago region manufacturing index inched down in October, although well ahead of expectations and remaining close to its two-year high reached in September. The index was at 61.1 and any reading above 50 indicates expanding conditions. (6)
Mortgage applications to purchase a new home jumped 24% for the week ended October 23 compared to last year, and the average loan size reached another record high at $372,600 as sales of high priced homes led the growth. The average 30-year mortgage rate declined 2 basis points to 3.00%. (7)
Proprietary portfolio happenings:
Two G50 holdings, AbbVie (ABBV) and Fidelity National Financial (FNF), announced significant dividend hikes after reporting quarterly results that were ahead of expectations. ABBV raised their dividend by 10%9 while FNF raised their dividend by 9%. (10)
Eli Lilly & Co. (LLY), a G50 and Core Select holding, reported quarterly revenue and earnings that was below expectations and lowered guidance. (11) Additionally, the company announced an initial $375 million agreement with the U.S. government to supply 300,000 vials of an investigational neutralizing COVID-19 antibody. (12) Shares declined 8.4% for the week.
Sanofi Aventis (SNY), a G40i holding, committed to produce 200 million doses of a COVID-19 vaccine along with Glaxo Smith Kline (GSK) once regulators approve the drug, in the first half of next year at the earliest. (13) Shares were down 8.2% for the week.
Did You Know? Perhaps you’ve noticed that most music heard from movie trailers does not appear anywhere in the movie or on the movie soundtrack. This is because trailers are generally made long before the movie’s release date, often even a year in advance. However, one of the last things typically done on any film is to give it to a composer to add the music
Sources: (1) JP Morgan Weekly Market Recap 11-2-20, (2) Center for Disease Control 11-1-20, (3) US Treasury, (4) Oilprice.com, (5) Bureau of Economic Analysis 10-29-20, (6) ISM Chicago Purchasing Managers Index 10-30-20, (7) Mortgage Bankers Association 10-28-20, (8) All weekly changes in company stock prices: Yahoo Finance, (9), AbbVie press release 10-30-20, (10) Fidelity National Financial press release 10-28-20, (11) Eli Lilly & Co. press, release 10-27-20, (12) Endpoint News 10-28-20, (13) Sanofi press release 10-28-20