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Stocks Lower Amid Persistent Virus Uncertainty

U.S. equities finished out a rocky week lower, as investors weighed further signs of progress on the COVID-19 vaccine/treatment front, as well as implications of the recent spiking of new virus cases in the U.S. and Europe. The move by the Department of Treasury to allow some of the Fed's emergency lending programs to expire at the end of the year also garnered attention, but the market reaction was relatively tame. Meanwhile, Eli Lilly and Company received Emergency Use Authorization (EUA) by the FDA for its arthritis therapy, in combination with remdesivir, for the treatment of COVID-19, while Pfizer and BioNTech announced that they will submit a request today to the FDA for EUA of their COVID-19 vaccine candidate. In earnings news, the Street scrutinized mixed results and guidance from Intuit and Workday. Treasury yields were lower, as bond prices rose, and the U.S. dollar nudged higher amid a dormant economic calendar, while gold and crude oil prices gained ground. Europe finished higher to extend a weekly gain, while markets in Asia were mixed.

The Dow Jones Industrial Average fell 220 points (0.8%) to 29,263, the S&P 500 Index was down 24 points (0.7%) at 3,558, and the Nasdaq Composite declined 50 points (0.4%) to 11,855. In heavy volume, 952 million shares were traded on the NYSE and 3.7 billion shares changed hands on the Nasdaq. WTI crude oil was $0.52 higher at $42.42 per barrel and wholesale gasoline added $0.02 to $1.18 per gallon. Elsewhere, the Bloomberg gold spot price rose $6.57 to $1,873.11 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—nudged 0.1% higher to 92.36. Markets were mixed for the week, as the DJIA and the S&P 500 decreased 0.7%, but the Nasdaq Composite increased 0.2%.

Eli Lilly and Company (LLY $145) is in focus after the U.S. Food and Drug Administration (FDA) issued Emergency Use Authorization (EUA) for its arthritis treatment baricitinib, sold under the brand name Olumiant. The FDA granted the EUA for Olumiant, in combination with remdesivir, for the treatment of suspected or laboratory confirmed COVID-19 in hospitalized adults and pediatric patients two years of age or older requiring supplemental oxygen, invasive mechanical ventilation, or extracorporeal membrane oxygenation. Shares were modestly higher.

Pfizer Inc. (PFE $37) and BioNTech SE (BNTX $104) announced that they will submit a request today to the FDA for EUA of their COVID-19 vaccine candidate, which will "potentially enable use of the vaccine in high-risk populations in the U.S. by the middle to end of December 2020." Shares of both companies gained ground.

Optimism of multiple highly-effective potential COVID-19 vaccines has ushered in a rotation among stocks as discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her latest article, Changes: Vaccine News Changing Market's Leadership Characteristics?. Liz Ann notes how we have closed out our overweight large cap/underweight small cap tactical recommendation, after a very successful three-and-a-half years. She adds that euphoria around vaccine news and last week's market strength is now manifesting itself in both behavioral and attitudinal investor sentiment measures.

This market environment has prompted us to make some changes to our tactical recommendations, discussed by Schwab's Managing Director and Senior Investment Strategist, David Kastner, CFA, in his latest Schwab Sector Views: Election, Vaccine News Change the Picture.

We upgraded the Health Care sector to outperform and maintained our outperform rating for the Financials sector, while downgrading Consumer Staples to underperform and keeping our underperform rating on the Utilities sector.

In earnings news, Intuit Inc. (INTU $348) reported Q1 earnings-per-share (EPS) of $0.75, or $0.94 ex-items, compared to the $0.41 FactSet estimate. Revenues rose 14.0% year-over-year (y/y) to $1.3 billion, topping the Street's forecast of $1.2 billion. The software company and maker of TurboTax and QuickBooks said it had a strong start to the year as it continues to accelerate innovation on its A.I.-driven expert platform. INTU issued fiscal year 2021 EPS and revenue guidance that was above expectations. Shares were lower.

Workday Inc. (WDAY $209) reported a Q3 loss of $0.10 per share, or EPS of $0.86 ex-items, compared to the projected profit of $0.67 per share. Revenues rose 17.9% y/y to $1.1 billion, roughly in line with forecasts. The enterprise cloud-based human resources and finance applications provider said it saw continued momentum in financial management and it has some of its largest Worday Human Capital Management go-lives to-date and record customer demand on the strategic sourcing front. WDAY raised its full-year subscription guidance but its outlook for its backlog appears to be garnering some scrutiny on the Street. Shares fell.

For other timely strategies on how to navigate the volatile market conditions and in-depth analysis in the wake of the election, check out our Market Insights page, and follow us on Twitter at @SchwabResearch.

Treasury yields tick lower to finish down for the week

Treasuries were higher amid a dormant economic calendar, as the yield on the 2-year note was little changed at 0.17%, while the yield on the 10-year note was down 2 basis points (bps) at 0.83%, and the 30-year bond rate fell 4 bps to 1.53%.

Bond yields have declined this week as the global markets grappled with the progress on the COVID-19 vaccine front and implications of some reinstated stringency measures as virus cases surge in the U.S. and Europe. Rates had bumped up against the high end of a recent range, with the 10-year Treasury yield threatening the 1.00% mark earlier this month before moving back toward the middle of the range it has been stuck in since late March.

Schwab's Chief Fixed Income Strategist Kathy Jones notes in her latest 2021 Fixed Income Outlook: Calmer Waters, with the likelihood of vaccines for the coronavirus becoming widely available by mid-year, the economy should get a boost as sectors that have been held back by the health crisis recover. Kathy adds that there is also the possibility of more fiscal relief for the economy coming late this year or early next year. Consequently, she discusses how we see the potential for 10-year Treasury bond yields to trade in a range of 1% to as high as 1.6% in 2021, reflecting the prospects for real economic growth to recover at a faster pace.

Europe higher and Asia mixed to close out the week

European equities finished out the week higher, with the Energy sector extending a recent rebound on the optimism regarding the potential that multiple highly-effective COVID-19 vaccines could be available as soon as the end of the year. The Energy sector has been one of the beneficiaries of the recent shift to cyclically-natured stocks as the vaccine developments could expedite the global economic growth recovery. However, conviction continued to be limited by concerns about the potential rough patch facing the markets before a vaccine gets rolled out, due to the recent surge in COVID-19 cases in the world's largest economy of the U.S. and in Europe, which have resulted in the reinstatement of some stringency measures. In economic news, U.K. retail sales for October came in much stronger than expected, ahead of a read on November Eurozone consumer confidence. The euro lost ground versus the U.S. dollar and the British pound ticked higher. Bond yields in the Eurozone and the U.K. slipped slightly. The markets also continued to keep an eye on the drawn-out U.S. presidential election and the uncertain road ahead for the transition, as discussed by Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, in his latest article, Election Day to Inauguration Day: a test for global stock markets. Jeff discusses how stock market performance during the transition period between outgoing and incoming U.S. presidents tends to be more dependent on the economic cycle than the election results.

The U.K. FTSE 100 Index was up 0.3%, France's CAC-40 Index and Germany's DAX Index rose 0.4%, Spain's IBEX 35 Index gained 0.6%, Italy's FTSE MIB Index advanced 0.8%, and Switzerland's Swiss Market Index nudged 0.1% higher.

Stocks in Asia finished the week mixed, with the markets remaining a bit skittish amid the threat of further economic disruption due to the recent resurgence of COVID-19 cases in the U.S. and Europe, but holding onto optimism regarding a potential vaccine on the horizon. In economic news in the region, Japan's preliminary reads on November manufacturing and services sector output decelerated slightly to remain in contraction territory, while China held its 1-year and 5-year loan prime rates steady. Japan's Nikkei 225 Index declined 0.4%, with the yen holding onto yesterday's gain, while China's Shanghai Composite Index rose 0.4%. Australia's S&P/ASX 200 Index dipped 0.1%, though the Hong Kong Hang Seng Index increased 0.4%, South Korea's Kospi Index nudged 0.2% higher, and India's S&P BSE Sensex 30 Index advanced 0.7%. Schwab's Jeffrey Kleintop offers a look at the global landscape in his article, "De-globalization" Already Happened And It Didn't Matter, noting how for investors, the stall in global trade since 2008 hasn't necessarily led to a stall in profits for multinational companies that make up the major stock market indexes or a decline in the international portion of those profits.

Stocks mixed as markets grapple with short-term and long-term virus implications

Stocks finished another choppy week mixed, with the markets continuing to wrestle with the likelihood of a rough patch on the heels of the persistent spike in COVID-19 cases in the U.S. and Europe, while remaining optimistic regarding the further progress on the vaccine-treatment front. Hope of a potential faster-than-expected economic recovery came courtesy of two vaccine candidates from Pfizer and Moderna that showed nearly 95% efficacy, while Eli Lilly's therapy was awarded Emergency Use Authorization. As such, cyclically-natured Energy, Industrials, and Materials sectors were outperformers on the week, along with the value-oriented Financials sector, though defensive sectors—Utilities, Health Care, and Consumer Staples—saw red figures. The high-flying Information Technology sector was little changed amid a wild week as the markets attempted to decipher the sustainability of growth in a post-pandemic world. The retail sector put the finishing touches on earnings season, with sales growth from Dow members Walmart Inc. (WMT $150) and Home Depot Inc. (HD $270) remaining robust, but Target Corporation (TGT $172) headlined the week, trouncing estimates as digital sales surged.

Treasury yields gave back some of a recent rise, as bond prices nudged higher, and the U.S. dollar slid somewhat. Crude oil prices continued to rebound for a third-straight week and gold saw some pressure. The economic calendar painted a mixed picture this week, with October retail sales figures missing expectations, but housing data continued to be decisively positive. The NAHB's homebuilder sentiment gauge for this month notched another record high and existing home sales unexpectedly rose in October as sales of single-family units registered the fastest pace since 2007. Moreover, the Federal Reserve's October industrial production report grew more than expected as manufacturing output continued to expand solidly.

Although next week will be shortened by the Thanksgiving holiday, with all U.S. markets closed on Thursday and logging a half-day on Friday, the economic calendar will deliver a full week's worth of data for the markets to contend with. The ball will get rolling with Markit's preliminary November Manufacturing and Services PMIs, which will be followed by the Conference Board's Consumer Confidence report for this month. The week will culminate on Wednesday before the holiday break with a plethora of reports that could move the markets including; jobless claims for the week ended November 21st, preliminary October durable goods orders, personal income and spending for last month, the second read (of three) on Q3 GDP, the final November University of Michigan Consumer Sentiment Index, October new home sales, and the minutes from the Federal Reserve's November 5th monetary policy meeting.

Next week's international economic docket will be relatively light, with November Manufacturing and Services PMIs out of Australia, the Eurozone and the U.K. headlining the calendar, along with German business sentiment for this month.

As noted in the latest Schwab Market Perspective: Vaccine News Improves Outlook, encouraging vaccine news has raised hopes for a quicker pace of economic recovery. Although some COVID-19-related restrictions have been reinstated around the globe, they may have less of an overall economic impact than the spring lockdowns. Bond yields have started to rise on expectations for a stronger economy in 2021. However, no matter what the market is doing, we always suggest being prepared for future unexpected events. Holding a well-diversified portfolio may buffer short-term market moves—that means making sure you have an appropriate mix of investments, including international as well as U.S. stocks, fixed income securities, and a healthy equity sector mix.

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