Market Insights: U.S. Online Sales Shatter Record

Macroeconomic and Market Developments:

• North American stock markets were positive this week. In the US, the Dow Jones Industrial Average was up 2.21% and the S&P 500 index was up 2.28%. In Canada, the TSX Composite index was up 2.22% and is now in positive territory for 2020.
• The Canadian dollar was also positive this week, finishing at 77.0 cents from 76.4 cents last Friday. The loonie is now back to where it started 2020.
• Oil prices continued to move higher this week. West Texas crude increased from approximately $42.50 last Friday to approximately $45.50 this Friday. Western Canadian Select oil jumped from approximately $29.50 last week to approximately $33.00 this week.
• Gold continued its slide this week, falling from $1,870 to $1,790 this Friday.
• On Monday, AstraZeneca-Oxford announcing its vaccine prevented an average of 70% of Covid cases. While this blended average is below competitors, 90% efficacy was seen when administered as a half dose followed by a full dose at least one month apart. In addition, distribution is expected to be much easier than competitors with only normal refrigeration for storage. Meanwhile, the Pfizer-BioNTech vaccine could be available for use in US and UK in December, if regulators give the go-ahead.
• In the US, President-elect Joe Biden announced on Monday that he has chosen former Federal Reserve Chair Janet Yellen as Treasury Secretary. If confirmed by the Senate, Yellen would be the first woman to lead the department. Yellen was the first woman to serve as the US Federal Reserve’s chair after her Senate confirmation in 2014.
• On Tuesday, Suncor Energy announced that it will take over the day-to-day operations of the Syncrude oilsands mining joint venture next year. Suncor currently owns a 58.75% majority in Syncrude, however the current operating structure has Imperial Oil, which owns 25% of the project, appoint presidents to oversee it. Due to the fact that Syncrude and Suncor have overlapping roles, because Syncrude operates as a standalone business, it expects the move to cut costs by $300 million by reducing redundancies.
• US software company Salesforce (symbol CRM) is in talks to acquire messaging software company Slack (symbol WORK). CNBC reported this week that a deal could be announced as soon as next week, according to a person familiar with the matter. The acquisition would be Salesforce’s largest to date, and one of the largest in the software industry in recent years, if the companies go through with it.
• Thursday was Thanksgiving in the US and, according to Adobe Analytics, Thanksgiving Day online spending rose by 21.5% year over year to $5.1 billion, hitting a new record. With nearly half of those purchases made on a smartphone, the data reflects a trend of more consumers avoiding malls and buying gifts from home during the coronavirus pandemic.
• Bank of Canada Governor Tiff Macklem testified in front of a parliamentary committee on Thursday. He defended the central bank’s Quantitative Easing program, the central bank’s program to purchase a minimum of $4-billion a week of government bonds, stating that “We’re not financing the government”. He also reiterated that the government is not in danger of insolvency without the bank’s continuing purchases of billions of dollars a week of government debt.
• Total COVID-19 cases around the world now stand at approximately 61.3 million with total deaths at approximately 1.44 million. In Canada, total cases are 353,097, with active cases at 60,375. In Alberta, total active cases now stand at 14,052.
• For a deeper dive, the US investment company First Trust has put out a US COVID-19 Tracker: COVID TRACKER

Charts of the Week:

Well, it’s Black Friday today and we are sure many of you are shopping online to get some great deals on Christmas gifts for your loved ones. As noted above on the record-breaking U.S. Thanksgiving online sales, with the latest wave of COVID19 cases, this number is not really a surprise and we will likely see even more records shattered over the weekend.

Another positive today is that we have seen volatility in the markets finally drop below an important level. The CBOE Market Volatility index (VIX), also known as the Fear Index, dipped below 20 intraday today. The Fear Index is a popular measure of the implied volatility of S&P 500 options. This is the first time below the 20 level since February 21st. The market generally views a VIX below 20 as an important line of calm (below 20) or rough waters. Hopefully, this is a sign of more calm waters ahead.

          Source: Bespoke Investment Group LLC

On Wednesday, U.S. Real GDP (second estimate) was unrevised at a 33.1% annual growth rate in Q3, matching consensus expectations. There were upward revisions to business investment and residential investment offset downward revisions to inventories, personal consumption, government spending, and net exports. The largest positive contribution came from personal consumption, which is a positive sign. In our view, the big news in the GDP report was that economy-wide U.S. corporate profits soared in the third quarter, rising 27.1% and hitting a record high, even higher than pre-COVID-19 levels. Profits were up 3.3% versus a year ago. This may be a surprise to many given the circumstances with COVID19, however, it is a strong reminder of the resilience of the U.S. consumer. Plugging those economy-wide profits into a capitalized profits models suggests that, given low interest rate levels, stocks are still relatively inexpensive, particularly sectors outside technology and healthcare.

Lastly, it has been over three weeks since the hotly contested U.S. Election, so we thought we would share this chart which shows the intraday performance of the S&P 500 in the three weeks after a Presidential Election from 1984 to 2020. This year, the S&P 500’s 7.9% three-week gain is the second-best performance on record (only behind Reagan in 1980). For Presidents who served two terms, the performance following their second election is noted by “2nd” in parentheses. As you can see, the gain in the three weeks after Biden’s election tops every other President since 1984. This is in stark contrast to 2008, when Biden was first elected Vice President, and the S&P 500 had its worst three-week post-Election Day performance (dark blue line labeled Obama). Unfortunately, looking at the data post the three-week mark, there isn’t much correlation on this statistic toward future positive/negative performance. However, we thought this would be interesting to share with you.

               Source: Bespoke Investment Group LLC

 

Sources: CNBC.com, Globe and Mail, Financial Post, Government of Canada, Government of Alberta, Johns Hopkins, oilprice.com, Canaccord Genuity, Bespoke Investment Group LLC, First Trust Portfolios, Adobe Analytics