Gradient Investments Weekly Talking Points

All Data is for the week ended October 23, 2020

Stocks

U.S. equity markets were mixed last week, with the S&P 500 rising 0.21%, the Russell 2000 declining 0.22% and the NASDAQ advancing 0.79%. Overseas, the developed markets (MSCI: EAFE) dropped 1.45% while the emerging markets (MSCI EM) edged up 0.15%. We are in the midst of earnings season; with 20% of the S&P 500 companies already reported, more than 83% of those have beat earnings expectations. Last week the industrials and communications services were the best performing sectors while real estate and energy were the laggards. U.S. growth stocks outperformed value stocks.1

Fixed Income

Interest rates rose and bond values fell, with the benchmark 10-year U.S. treasury yield rising 9 basis points to 0.85%.2 Rates rose across all maturities from 2-years to 30-years in response to strong home sales and employment (see Economic Data below).

Commodities

Oil prices remain stuck in the $40 area as demand is weak in the U.S., Latin America and Europe and as the coronavirus continues to spread. However, Asian demand for gasoline and jet fuel is rebounding strongly as the region is approaching pre-pandemic economic activity.3

Economic Data

Weekly new jobless claims of 787,000 were better than consensus expectations by nearly 100,000, and the prior week’s report was revised to show better numbers. 7

China’s economy grew 4.9% year-over-year in the third quarter, missing expectations but still showing quarter-over-quarter improvement. For September alone, the country’s overall growth rate is moving toward the 6% area, which is a pre-pandemic level. 4

Existing U.S. home sales (90% of total home sales) advanced 9.4% from August and nearly 21% on a year-over-year basis, exceeding expectations and the best rate of growth since the housing bubble nearly 15 years ago. The median price was up 15%.5

New construction starts of single family homes (10% of total home sales) rose 8.5% in September from August and 22.3% on a year-over-year basis, far exceeding consensus expectations. The gains are attributable to record low mortgage interest rates and a pandemic-driven desire to distance from neighbors.6

Company News

ConocoPhillips (COP) and Concho Resources Inc. (CXO), both Energy Sector strategy holdings, have agreed to an all stock merger valued at nearly $10 billion in which Concho shareholders will receive 1.46 ConocoPhillips shares for each Concho share they own.8

Discover Financial Services (DFS), a Contrarian Choice, Core Select and G50 holding, reported quarterly results that beat expectations and management indicated that sales growth is accelerating in recent months. Shares rose 3.9% for the week.9

Las Vegas Sands (LVS), a Contrarian Choice holding, reported revenue and earnings that were down dramatically from a year ago but slightly better than expected. Management offered encouraging commentary around long term demand for gaming. Shares rose 11.7% for the week.10

Quest Diagnostics Inc. (DGX), a G50 holding, reported a 42% gain in revenues and a 165% increase in EPS, far exceeding consensus expectations, and boosted guidance based on strong demand for its COVID-19 related services. Shares rose 5.8% for the week.11

Did you know …

Halloween has evolved from an ancient Celtic festival, when people would light bonfires and wear masks to ward off ghosts who might otherwise take up company with the living. Food back then was left outside of homes to avert ghouls from entering in search of nourishment. Fast forward to last year: Americans spent nearly one-half billion dollars on Halloween costumes for their pets and $6 billion for candy

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Sources:
1 JP Morgan Weekly Market Recap 10-26-20
2 US Treasury
3 Oilprice.com “Oil Prices Slip Again as Covid Cases Surge” 10-23-20
4 Financial Times “China’s Economy Expands 4.9% in Third Quarter” 10-19-20
5 National Association of Realtors 10-22-20
6 US Census Bureau 10-20-20
7 US Department of Labor 10-22-20
8 ConocoPhillips press release 10-19-20
9 Discover Financial Services press release 10-21-20
10 Las Vegas Sands press release 10-21-20
11 Quest Diagnostics press release 10-22-20