The U.S. stock market was closed on Thursday for Thanksgiving but its weak performance on Wednesday served as a reminder that not everyone was in the mood to give thanks as mounting U.S. layoffs in the wake of new mandated lockdowns to contain surging COVID-19 infections dampened investor risk appetite.
Despite the grim labor market numbers, the early futures market trade shows investors remain optimistic about the economy with many looking forward to the start of the holiday shopping season on Friday, which could give the retail sector a much needed jolt, and the release of a coronavirus vaccine that could help stabilize the economy as early as the second quarter of 2021.
In the cash market on Wednesday, the benchmark S&P 500 Index settled at 3629.65, down 5.76 or -0.17%, the blue chip Dow Jones Industrial Average finished at 29872.47, down 173.77 or -0.63% and the tech-based NASDAQ Composite closed at 12094.40, up 57.61 or +0.52%.
The price action the previous session suggests some investors may be reverting back to the allocation that powered the stock market from March to October with the S&P 500 Index and the Dow Jones Industrial Average retreating from record closing highs, pulled lower by cyclicals and small caps, and the pandemic-resilient tech and tech-adjacent market leaders helping the NASDAQ remain within striking distance of its all-time high.
The back and forth price swings this week also suggest we may not get a true Christmas rally in all investment categories with investors flipping their buys and sells between growth and value stocks. The market could struggle gaining traction as investors get pulled one-way by the fallout from the surge in COVID-19 cases and the other way by the positive vaccine developments.
“There’s a reality setting in that while the vaccine will start being distributed fairly quickly, the virus isn’t going away quickly and therefore the timeline for economic improvements is getting pushed out,” Tim Ghriskey, chief investment strategists at Inverness Counsel in New York said.
Longer-Term View Remains Bullish
Over the short- to medium-term, the main drivers of the price action are likely to be promising vaccine news, stay-at-home plays on pandemic realities and lack of new fiscal stimulus. However, the bias is likely to remain to the upside as investors become more optimistic about President-elect Joe Biden’s visions for ending the COVID-19 crisis, creating jobs and growing the economy.
Furthermore, the removal of uncertainties surrounding the U.S. presidential election helped drive Wall Street to record closing highs, and put the S&P 500 on course for its best November ever.
As further proof that investors have turned more optimistic post-election, a recent Reuters poll showed analysts believe the S&P 500 will gain 9% between now and the end of 2021. The index has surged about 66% since the coronavirus-led crash in March and is up about 12% so far this year.