Another slow day on the news front, if you have any U.S. orders make sure to get them filled before markets close at 1pm. Stocks are poised to extend their rally at the end of a historic week that saw the Dow Jones Industrial Average close above 30000 for the first time. Expect a quiet day on the data and company earnings, the biggest company headline we noted was that AstraZeneca is likely going to have to rerun their vaccine trials, noting it needs more study. Several scientists have raised doubts about the robustness of results released on Monday showing the experimental vaccine was 90% effective in a sub-group of trial participants who, by error initially, received a half dose followed by a full dose.
Although market volatility has fallen in recent weeks with the VIX falling below 20 this morning, there have been now 194 consecutive trading sessions above that threshold. This is the longest such streak since one end in 2009 during the financial crisis. 2020 is the type of year where records like these get tested. Despite new highs in the market, the elevated VIX signals an underlying cautious demeanor for investors, knowing full well that we’re just a headline away from another market swoon. It also means that hedging your portfolio with options is more expensive. Dow Jones Market Data did some sleuthing and noted that in six out of eight of the past periods where the VIX hovered above 20 for at least 100 sessions, the S&P 500 had fallen, not risen.
Gold’s tumble accelerated this morning, as it broke through the 200day moving average at $1799/oz the algo’s took over and pummeled the shiny yellow metal causing it to fall nearly another $20 within a couple of minutes. As we write it’s trading at $1782, down 1.8% on the day.
It's Black Friday, the biggest shopping day of the year, but we’ll be surprised to see the same types of crowds lining up for door crashers with most bargain hunters electing to buy online this season. With rising wages and increasing consumer confidence, U.S. holiday sales are expected to grow between 3.6% and 5.2%, compared with the 4% growth last year, while online sales are seen rising 20% to 30%, according to the National Retail Federation.
France has sent out notices to Big Tech companies to pay its digital service tax as planned in December. The levy was postponed earlier this year while negotiations played out at the OECD regarding an overhaul of cross-border taxation rules, but with the group stretching negotiations in 2021, France chose not to wait. The country will apply a 3% tax on revenue from digital services earned in France by companies with local revenues of more than €25M and €750M worldwide. Amazon has noted that they will comply with the request.
Diversion: Meet Bogie, the motorcycle dog who cruises the streets of the Philippines.
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Pfizer has agreed to inoculate 20% of the population in Malaysia with their new covid 19 vaccine. Biogen is creating a partnership with Sage Therapeutics to develop drugs for depression. The deal is valued at more than $3.1 billion. Lending Club is shuttering their business that allowed individuals to make loans. They plan to purchase a bank and pivot to only servicing individuals and family offices. SunOpta one of North America’s top performing food producers is making a big bet on oat milk. They are spending $26mm on expanding the oat processing facility in Minnesota. Analysts are expecting Lightspeed to see slower revenue growth going forward as some restaurants do not make it through the pandemic. On a related note, Ontario is limiting the fees companies like Uber Eats and DoorDash can charge restaurants. This follows the lead of New York City, which took similar action.
Oil prices are rather mixed on this Friday morning, however, it seems prices are set for a fourth weekly gain in a row. At the time of writing NYM WTI Crude futures are down -0.74% to US$45.37/bbl. ICE Brent Crude futures, the global benchmark, are up +0.88% to US$48.22/bbl. Continued positive vaccine news from other companies is the main reason for the weekly gain in Crude. However, the surging in cases continues across the globe hindering demand. All eyes will be on the upcoming OPEC meeting where they will decide whether or not to delay the 2 million bpd increase in output in January. The organization will meet on November 30 and December 1.
Gold Spot Price is relatively flat this morning. At the time of writing, the yellow metal is down -18 bps to US$1,807.31/oz. Gold is setting itself up for its worst week in 2 months. Investors chose riskier assets this week over the safe haven option. Positive news on the vaccine front increased risk appetite for the investment community. However, with a continued weaker dollar, the losses in gold are limited. Still, the opportunity cost of holding gold is much lower due to the low interest rate environment.
Fixed income and economics
Four years ago the municipal bond market in the U.S. sold off following the 2016 election as Trump’s promise of lower taxes meant there would be less revenue for various counties. Four years later, nothing seems to have changed. The amount of state and local government debt expected to default is likely to stay elevated in the coming years according to Barclays. And this time it’s due to the lasting effects the pandemic will have on some corners of the $3.9 trillion municipal bond market. Junk muni default rates are expected to hover between 1% and 3% in 2021, according to a research note from their analysts, and that the rate may remain higher for coming years because distress in municipals tends to lag boarder credit markets. Already, the year-to-date default rate is just over 1% and higher than the ultra-low levels seen in previous years. Most of those defaults were focused in issuers that sell bonds for continuing care retirement communities, hospitals and industrial developments according to the report. Contrast this to the average five-year municipal default rate of just 0.13% since 2010. Barclays described the credits most challenged by the pandemic as a “small universe” compared to the boarder municipal market, though credits that are under pressure will likely “remain stressed” and a recovery will “lag the rest of the muni market”. And if there is no sizable fiscal stimulus package, the severity could accelerate even faster.