U.S. Markets: The major U.S. indexes reached record highs as expectations grew for the passage of another federal coronavirus relief package.  Information technology stocks outperformed within the S&P 500 Index, while energy stocks lagged despite oil prices touching nine-month highs.  The Dow Jones Industrial Average added 133 points finishing the week at 30,179, a gain of 0.4%.  The technology-heavy NASDAQ Composite rebounded 3.1% ending the week at 12,756.  By market cap, the large cap S&P 500 added 1.3%, while the mid cap S&P 400 and small cap Russell 2000 added 2.1% and 3.0%, respectively.

International Markets: Canada’s TSX ticked down -0.1%, while across the Atlantic the United Kingdom’s FTSE 100 retreated -0.3%.  On Europe’s mainland France’s CAC 40 rose 0.4%, while Germany’s DAX vaulted 3.9%.  In Asia, China’s Shanghai Composite rallied 1.4% and Japan’s Nikkei added 0.4%.  As grouped by Morgan Stanley Capital International, developed markets added 1.7% and emerging markets rose 1.6%. 

Commodities: Precious metals enjoyed a week of solid gains.  Gold rose 2.5% to $1888.90 per ounce, while Silver surged 8.1% to $26.03 per ounce.  Crude oil continued its rally off of pandemic lows.  West Texas Intermediate crude oil climbed for a seventh consecutive week to $49.24—a gain of 5.7%.  The industrial metal copper, viewed by some analysts as a barometer of world economic health due to its wide variety of uses, also had its seventh week of gains rising 3.0%.

U.S. Economic News: The number of Americans filing first-time claims for unemployment benefits hit a nearly 4-month high as a resurgence in the coronavirus triggered more layoffs.  The Labor Department reported initial jobless claims climbed by 23,000 to 885,000 last week.  Economists had expected new claims to fall to 818,000.  On a positive note, continuing claims, which counts the number of people already receiving benefits, fell by 273,000 to a seasonally-adjusted 5.51 million in the week ended December 5th.  That’s a new pandemic low.

Confidence among the nation’s homebuilders slipped slightly in December according to research from the National Association of Home Builders (NAHB), but remained near record highs.  The NAHB reported its monthly confidence index dropped four points to a reading of 86.  This was the index’s first decline following three consecutive months of record highs.  Even with December’s decline, the figure represents the second-highest reading in the index’s history.  In the report, the three main indicators that guide the overall index all decreased by four points from November’s reading.  The index that measures sentiment regarding prospective buyer traffic came in at 73.  The index of expectations for future sales over the next six months dropped to 85, and the gauge of current single-family home sales slipped to 92.  Sentiment also declined across all parts of the country.  The index fell by three points in Northeast, Midwest and South, and by two points in the West.

A pair of preliminary surveys of U.S. businesses added to evidence that the economy is slowing in the wake of the resurgence of coronavirus.  Analytics firm IHS Markit reported its “flash” survey of executives at services companies such as restaurants, health care providers, and financial firms fell 3.1 points to 55.3 this month.  Although numbers over 50 indicate expansion, it was the weakest reading in three months.  A similar survey of manufacturers ticked down 0.2 points to 56.5.  Chris Williamson, chief business economist at IHS Markit stated, “While vaccine developments mean some of the cloud caused by the pandemic should lift as we head through 2021, rising case numbers continue to darken the near-term outlook.”

Sales among the nation’s retailers fell in November as the resurgence in coronavirus cases weighed on restaurants and the overall economy.  The Census Bureau reported retail sales fell 1.1% last month, further than the 0.4% economists had predicted.  Restaurants, auto dealers, gas stations, and department stores all reported lower sales.  The only segments to post higher sales were grocers, home centers, and internet retailers.  Still, sales are up 29% from a year earlier because of an explosion in online shopping, accelerating a trend that’s been going on for years.  The big losers in the transition have been traditional department stores.  Sales sank 7.7% last month in that category.

December marked the third consecutive month of slowing business activity in the New York region, according to the latest survey from the New York Fed.  The NY Fed’s Empire State business conditions index slipped to 4.9 this month, down from 6.3 in November.  Economists were expected a reading of 7.2.  The Empire State index has fallen steadily after hitting 17 in September.  In the details, the new-orders index inched down 0.3 points to 3.4 in December while shipments rose 5.8 points to 12.1.  Optimism about the six-month outlook rose 2.4 points to 36.3, suggesting firms remain optimistic about future conditions.  Analysts aren’t expecting the sharp rebound in manufacturing to continue into the new year.  Oren Klachkin, lead U.S. economist at Oxford Economics stated, “Manufacturing’s strong performance this year isn’t likely to be repeated in 2021.  An end to the health crisis is slowly coming into view, and we expect that less buoyant demand, some lingering Covid-related supply chain disruptions, and less stimulative fiscal policy will constrain manufacturing activity next year.”

The Federal Reserve reported that nationwide industrial output rose 0.4% last month.  Economists had expected an increase of just 0.2%.  In the report, manufacturing activity advanced 0.8% last month, led by a strong 5.3% gain in motor vehicles and parts.  However, utilities output declined 4.3% as warmer-than-usual temperatures reduced demand.  Mining production and oil drilling rose 2.3% in November, following a 0.7% decline the prior month.  Analysts Michael Gapen, chief economist at Barclay’s and Gus Faucher, chief economist at PNC Financial Services Group, both put out research notes expecting manufacturing output to jump once the COVID-19 vaccine is widely available.

The Federal Reserve announced it will keep buying bonds until it sees “substantial progress” in returning the economy to healthy growth and “stable” 2% inflation.  At the conclusion of its two-day policy meeting, the central bank said it would continue to buy at least $80 billion per month of Treasury bonds and $40 billion of agency mortgage-backed securities.  Previously the Fed had said the purchases would only continue through the “coming months”.  The Fed did not change its program to expand its purchases of more longer-dated paper, as some economists and traders had anticipated.  With its policy interest rates pinned at zero, changes in asset purchases are one of the last remaining tools for Fed officials.  “These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses,” the Fed statement said.

International Economic News: Bank of Canada governor Tiff Macklem warned the nation’s economy could be entering a “difficult stage” amid a second wave of coronavirus cases.  In his last speech of the year, Macklem said uncertainty remains elevated and new restrictions could trigger a small contraction at the start of 2021.  On the plus side, Macklem noted “news on vaccines provides some reassurance that more normal activities can resume sometime later next year.”  Speaking to reporters after his remarks, Macklem said data suggest only a marginal increase in output in the final months of 2020, followed by a modest negative or small positive in the first three months of next year.

Across the Atlantic, the Bank of England stated the future of the UK economy is “unusually uncertain” as it held interest rates at record lows.  It said the new coronavirus vaccines bode well for long-term growth but that a recent jump in cases would drag on the country’s recovery.  Uncertainty over the still-unratified UK-EU trading relationship also clouded the outlook, it added.  The central bank held interest rates at 0.1% and left its stimulus program unchanged.  

On Europe’s mainland, French official statistics agency INSEE stated the French economy is on course to rebound in the first half of 2021 as long as the health crisis stabilizes.  The Eurozone’s second-biggest economy is expected to grow 3% in the first quarter of 2021, following an anticipated 4% contraction in the final quarter of this year.  INSEE then expects the growth rate to moderate slightly to 2% in the second quarter.  The French economy has slumped again this quarter after the government imposed a second lockdown from late October to contain a second wave of infections that has since eased.

German businesses are hopeful that Europe’s largest economy will pick up in the first half of next year.  The Munich-based Ifo Institute for Economic Research reported its business climate index increased to 92.1 points from 90.9, but remains below the 92.5 level from October.  Manufacturing optimism rose markedly, while services companies that depend on personal contact such as tour operators, hotels and performing arts remained under pressure.  The outlook among companies surveyed in logistics, transport and real estate improved.  Analysts noted that some survey responses may have been collected before the announcement of a new tougher lockdown took place.  

China’s top policy panel said the government will continue “necessary support” for the economy and will make “no U-turn” when there are still many outlook uncertainties due to the coronavirus pandemic.  The Central Economic Work Conference stated the world’s second-largest economy will put its focus on eight tasks for the coming year including strengthening strategic technological innovation, ensuring the control of supply chains and boosting domestic demand.  “We must maintain the continuity, stability and sustainability of macro policies … and make policies more targeted and effective,” the official Xinhua News Agency reported, citing a statement after the group’s three-day meeting.

Japan’s government upgraded its economic growth forecast for fiscal 2021 to a record real 4.0%, expecting the latest coronavirus stimulus package to boost the economy back to its pre-pandemic level.  Japan’s Cabinet Office upgraded its projection for the year (starting next April) from 3.4% growth in its previous estimate. But both the Organization for Economic Cooperation and Development (OECD) and the International Monetary Fund forecast Japan will expand by a much lower 2.3% in its latest estimates.  If realized, the economic expansion for the next fiscal year would be the largest since data became comparable in fiscal 1995, a government official said at a press briefing.

(Sources:  All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, CNBC, FactSet.)