Market Overview

30 November 2020

November’s Tally Has Been Confirmed by The U.S. Treasuries Taking a Step Back

This is the end of a rather chaotic November, but still some regularities or patterns could be remarked upon. Vaccine hopes generally got the better of many market worries, including current COVID-19 limitations in many countries as well as protracted uncertainty around the U.S. power transition process, and what seems to be a never-ending Brexit deadline. Despite all odds, stock markets are keeping their standards high.

The U.S. broad market S&P 500 index and Dow Jones industrial 30 index hit the corresponding all-time historical highs this month, and both of them have not adjusted too much after those record peaks. Some capital rotation converted IT-sector initial benefits into some former laggards. When the shares of some retail chains with clear anti-crisis immunity beat their previous records, even some "lost" assets like airlines or leisure travel companies showed some signs of life. For example, Norwegian Cruise Line Holdings Ltd and Carnival Corporation, providers of vacations to all destinations throughout the world, have actually revitalised while their shares added more than a half to their prices since the end of October.

For a pretty suffering banking sector, the fears surrounding  very large loan portfolios had not totally disappeared but moderately diminished. Even financial holdings like the Spanish-rooted Banco Santander, which met enough problems during the course of the pandemic year, have managed to rise almost 60% in price from the bottom. Citigroup shares had a slow but nice run upward all month, unwinding the previous negative tendency back. The key technical hurdle was the $54.00 area of September highs, but the price gapped above that point on November 24.

Giant investment banks including JPMorgan Chase & Co or Goldman Sachs already soared even above its spring price peaks. JP Morgan reported $600 mln profit for Q3 2020 versus the $2.4 bln expected, which quickly helped to raise the average JP Morgan 2020 estimate by expert polls from $5.90 in equity per share (EPS) at the end of September to $7.44 as of today. Moreover, Black Rock, which is the unique financial "shark", even showed its new high of the year again last week. Black Rock stocks rose to $715 per share from the $640 area, where they were traded in mid-October after the world's biggest asset fund manager showed a record $9.22 profit per share (EPS) on a record $4.37 bln revenue too. Still, the market capitalisation weight of the financial sector had risen to only 10.3% of the total S&P 500’s market capitalisation, so that it looks well underestimated in the long-run prospect, as it almost reached 20% just four years ago.

The prices of big oil companies, like Exxon Mobil or Chevron, also started to grow this month but most investors are trying to act more carefully with hydrocarbonic assets before the meeting of exporting countries (OPEC+) which began today. “It's been some month for oil, with three vaccines and various assurances from OPEC+ triggering a 35% rebound just as prices were getting into dangerous territory,” Craig Erlam, senior market analyst for OANDA in Europe, said in a note toward the end of the U.S. Thanksgiving week. Oil may not entirely be out of the woods yet despite its bullish market it in November. A big part of the market may consider that U.S. shale oil could make a comeback if the price of crude would rise above $50 at least for several months. 

The market mood is more active – up to this point -  if compared to similar periods during other years which seem to be more normal. Even during the festive week of Thanksgiving in the United States, Wall Street was not a passive observer, and that was a little bit abnormal as everything else in 2020, so it also gives hope for the abnormally active December, with a possibility of a so-called "Christmas rally" to come long before Christmas time itself. It might not be entirely correct to assume a glittering future for the very end of the eccentric year, but at least now the outflow of capital from U.S. Dollar denominated Treasury bonds confirms a positive pattern for stock markets.

Even the Wall Street Journal (WSJ) posted an eloquent article entitled "The Dollar Is Weak. Investors Bet It Will Slide Even More," on November 26. A justification for the U.S. Dollar weakening trend was concentrated in the phrase: "Forecasts assume Covid-19 recedes, encouraging investors to step back from the relative safety of U.S. assets". Then the WSJ authors added: "The consensus view of a falling dollar is based on a big assumption: Covid-19 will be more or less conquered in the months ahead. Vaccines will allow economies around the world to return to normal within the next year, encouraging investors to... invest in stocks, bonds and currencies outside the U.S."

The bare fact that European stock markets outperformed New York stock exchanges in November also supports this hypothesis, as well as EUR/USD soaring to almost 1.20 today. The Australian and Canadian Dollars are also near their maximum values since the end of 2018. Even the British Pound looks as if it is a Brexit-related sclerotic patient as the tally of negotiation games is not clear, yet the GBP/USD proudly supports the sentiment created by the intraday dips for the sixth straight trading day in a row.


Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

Lysakov Sergey
Market Focus
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