ClearWater Market Commentary as of December 7th, 2020

Here is the ClearWater Market Commentary as of December 7th, 2020:

In this issue:
– Performance of Major Indices
– Market Commentary
– Last Week’s Key Economic  
  Events and Upcoming Events

Performance of Principle Indexes: 

^{As of 2020/12/04 – Source: www.marketwatch.com}

^{As of 2020/12/04}

Last week’s and next week’s key economic events:
 

• US economy (S&P 0.16%):

Markets added to year-to-date gains last week, with the spotlight concentrated on the triumvirate of 1) vaccine progress, 2) the current state of the economy and 3) the potential for a fiscal package in Washington.

Our quick take on each:

1. Vaccine hopes: The mass distribution of a vaccine sometime next year represents an inflection point for the recovery, allowing economic activity to return to more normal levels. Markets have (appropriately) focused on the post-vaccine recovery in recent weeks, supporting the 13% gain in the S&P 500 and 10% rise in the TSX since the start of November.
2. The economy: While the prospective vaccines firm the outlook for growth next year, current conditions are showing the headwinds created by surging COVID-19 cases and the resulting shutdowns across many regions of the country and the developed world. Retail spending, manufacturing activity and the labour market are all exhibiting resiliency but also signs of stress. We expect the rebound to stall somewhat in the coming months before regaining momentum next year.
3. U.S. Fiscal stimulus: Negotiations in U.S. Congress over a fresh round of fiscal aid showed faint signs of progress last week, but an immediate deal is far from assured, as Democrats and Republicans remain divided on the size and targets of a new aid package.  We suspect that the broader U.S. budget negotiations in coming days will include incremental fiscal-relief measures, but a more comprehensive deal may not fully emerge until early next year. With the prospects of a vaccine improving, fiscal stimulus will be important in bridging the financial gap for households and small businesses until the economy is more fully reopened next year.

• Canadian markets (S&P/TSX 0.72%):
• Canada’s S&P/TSX Composite Index climbed to within 3% of its record high in February. The materials sector led the way as gold prices rose. Interest rate-sensitive utilities and real estate were among the weakest sectors, due to rising bond yields.
• In economic releases, Canadian employment numbers improved more than expected in November, and Canada’s third quarter gross domestic product was reported to have grown at an impressive 40.5% annual rate.
• However, that was well below the expectation of 47.5% that was built into the government’s Fall Economic Statement, released this week. The government’s plan included generous fiscal spending to support economic activity but projected a long and slow recovery of the government’s balance sheet.

Performance 2020: S&P 500/400/600 Sectors

• European and Asian economies:
• Shares in Europe paused after last month’s strong rally.  Core eurozone bond yields increased overall, lifted early in the week by expectations for further economic stimulus in the U.S. and encouraging developments related to coronavirus vaccines.  
• Efforts to combat coronavirus continue, EU recovery fund may move forward. The UK said it would begin deploying a coronavirus vaccine beginning the following week after the regulatory authority granted emergency use approval for the treatment developed by Pfizer and BioNTech. Data indicated that the rate of infections in Europe continued to level off, with the UK showing a drop of 30%. 
• EU-UK post-Brexit talks drag on, France threatens veto. Hopes that the UK and the EU would strike a post-Brexit trade deal by the weekend faded as disagreements persisted on fishing rights, state aid, and other contentious issues. Negotiators will now try to finalize a deal before the EU leaders’ summit next week, according to press reports. 
• Japanese stocks posted mix results for the week amid spike in infections. Mixed data on production, employment, and capex also affected returns.    
• Chinese stocks posted their third straight weekly gain, aided by solid economic data.

What to watch this week:

Canada:

• Canadian Ivey Purchasing Managers’ Index (PMI) (October)

United States:

• This upcoming Thursday Airbnb launches its IPO.
• Friday, Dec. 11 is the last day for the U.S. Congress to pass a bill to avoid a government shutdown.
• U.S. Job Openings and Labor Turnover Survey (JOLTS) (October)
• U.S. Core CPI (November)

Sources: Bloomberg.com,Yardeni.com, Barron’s.com, Factset.com and Newyorkfed.org

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