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 December 31, 2020. Economic/Market happenings:
The passage of a $900 billion stimulus bill for the U.S. helped alleviate fears about permanent economic scarring and provided markets with a solid foundation as the year ended. It provided hope that we can see the beginnings of a return to normalcy and the reopening of the economy. Last week the S&P 500 added 1.45% while the NASDAQ gained 0.66%. Smaller cap stocks of the Russell 2000 index gave back some of its recent outperformance, declining by 1.41%. International developed markets (MSCI EAFE) rose 1.44% while emerging markets (MSCI EM) were the strongest with a gain of 3.16%. (1)
Credit spreads (the difference between government yields and corporate yields) have tightened dramatically since their peak last March, to the point where they are nearly identical to the start of 2020. Companies cut back on spending over the last nine months to shore up cash. Looking forward — as the pandemic recedes, the economy recovers, and operations generate more cash — that extra money on corporate balance sheets can be put to work repaying some of their borrowings, buying back shares and increasing dividends. These actions would further increase credit quality and reduce credit spreads. The year ended with a 0.93% yield on the 10-year treasuries and a prime rate of 3.50%. (1)
The Elements Rogers International Agricultural Commodity ETN (RJA), an Endowment Series holding, should continue to benefit from rising grain prices as extremely dry weather in South America will lead to a later planting of the second corn crop in Brazil. This is likely to lead to lower than expected global production levels and pressure prices upward. A reduced crop in Brazil is important as the country grows almost 10% of the world crop and ranks behind the U.S. and China, respectively. (2)
Pending home sales fell 2.6% in November on a month-over-month basis due to extremely low inventory of homes available for sale. On a year-over-year basis, however, they rose 16.4% and reached a record high for November. Listed homes were going under contract on average in less than a month due to a backlog of buyers wanting to take advantage of record-low mortgage rates. (3)
Proprietary portfolio happenings:
AbbVie (ABBV), a G50 holding, disclosed in a presentation that two of its newest immunology drugs will ramp up faster than expected and offset the loss of sales of its major drug, Humira, as it goes off patent in 2023. Shares rose 3.8% for the week. (5)
AstraZeneca PLC (AZN), a G40i holding, as expected received UK approval distribution of its COVID-19 vaccine, a joint effort with Oxford University. Millions of doses are expected in the first quarter with an agreement for 100 million doses for the UK in total. The vaccine is under consideration for distribution around the world. Shares were up 3.0% for the week. (6)
Baidu Inc. (BIDU), a G33 holding, advanced 13.2% last week on expectations that the Chinese language internet search provider and business-to-business marketer, which also develops autonomous driving technology, may expand into manufacturing electric vehicles. (7)
Las Vegas Sands (LVS), a G50 and Contrarian Choice holding, along with Five Below (FIVE), a Core Select holding, and Wyndham Destinations Inc. (WYND), a Contrarian Choice and Core Select holding, advanced strongly last week as investors sought out stocks in companies that would benefit from a reopening of the global economy and also benefit from further government stimulus.
Did You Know? When the U.S. Parcel Post Service began in 1913, there were few guidelines on what could be mailed. As a result, a handful of parents began mailing their children. A five year old girl from Idaho was mailed 73 miles to her grandmother’s house at a cost of just 53 cents which was significantly cheaper than a standard train ticket of $1.55. Her case helped push forward an inquiry on the matter of mailing children and ultimately led to the Postmaster General to declare in 1915 that, from that point forward, it was prohibited to mail human beings.
Sources: (1) JP Morgan Weekly Market Recap 1-4-21, (2) Barron’s “Corn Crops are Unlikely to be Bountiful“ 1-2-21 3 National Association of Realtors 12-30-20, (4) All weekly changes in company stock prices: Yahoo Finance, (5) AbbVie presentation 12-14-20, (6) AstraZeneca press release 12-30-20, (7) Automotive News China 12-15-20