The last week’s market highlights:
Each week, we present our featured topics in the context of the major themes listed below from Nuveen’s Fourth-Quarter 2020 Outlook:
- U.S. economy: After the third-quarter bounce, a wobblier and flatter trajectory for U.S. growth.
- Global economy: Considerable fiscal stimulus should keep economies afloat.
- Policy watch: No Federal Reserve interest-rate hikes until at least 2023.
- Fixed income: Lean into higher-risk assets to generate income.
- Equities: Focus on quality across the board (and dividend payers, too).
- Asset allocation: Consider benefits of active management amid idiosyncratic opportunities.
Quote of the week:
“It is never over, though we are in December.” – Ernest Agyemang Yeboah
The U.S. labor market cooled in November, as anticipated
We had reason to be concerned about November’s job numbers, released on Friday of last week. High-frequency data (from Homebase) had already shown that fewer small businesses were open at the end of the month than in the beginning. And first-time unemployment claims had risen for two weeks in a row before finally falling last week.2 (On the other hand, continuing claims—the best gauge of how quickly the labor market is healing—have been declining.3)
Turns out our unease was justified. This employment report was, by far, the weakest since the labor market began to recover in May. Nonfarm payrolls grew by just 245,000 last month, well below the 432,000 expected and October’s total of 610,000.4 Adding to November’s downbeat labor-market news:
- Although the headline unemployment rate edged down to 6.7%, from 6.9% in October, it was for “bad” reasons — namely, the labor force shrank by 400,000 workers.5
- The broad labor force participation rate fell from 61.7% to 61.5%, matching its level in June. Meanwhile, the prime-age (25-54) workers’ participation rate has actually slipped since then (81.5% to 80.9%).6
- Private payrolls grew by 344,000 as public sector layoffs continued, but even that figure missed forecasts by almost 200,000.7
- While the number of workers on temporary leave continued to decline, that was partly because of an increase in the number of those self-identifying as having permanently lost their job.
Another worrisome figure: a growing percentage of jobless workers are becoming “long-term” unemployed, meaning they’ve been out of work for more than 27 weeks. History tells us that these individuals often have a harder time finding a new position than those who have only recently lost a job.
Such workers are also the ones most likely to have moved from state unemployment benefits to federal emergency assistance programs. The number of people in this situation appears to be declining. That’s crucial, since federal benefits are scheduled to end on December 31. We expect them to be renewed before then, even if a broader Congressional fiscal relief bill fails to materialize by year-end. Still, the mere possibility of their expiration may weigh on consumers looking for work and those who currently have jobs but are afraid of losing them.
U.S. stocks rallied in response to the weak November jobs report, with the S&P 500 gaining 0.9% on Friday.8 That may seem counterintuitive, but investors believed the deceleration in hiring boosted the likelihood of a near-term fiscal package. Encouraging rhetoric from Congressional leaders on the stimulus front likely contributed to Friday’s rally as well. In bond markets, the yield on the bellwether 10-year U.S. Treasury note rose 5 basis points, to 0.97%, on the prospect of higher inflation should federal spending increase.9