Quincy Krosby’s December 2020 market commentary: Detour

The detour the U.S. took in March is on the cusp of taking us back to the path we were on, slowly but surely, says Prudential's chief market strategist.

December 01, 2020

Highlights:

• Market performance on Nov. 24 was enveloped by hope that the other side of the pandemic was within view.
• The tug-of-war, the push and pull between short-term risks and positive long-term expectations is ongoing.
• Many of the data releases suggest that the underlying strength of the economy remains intact.

The juxtaposition of the Dow Jones Industrial Average climbing above 30,000 for the first time, next to photographs of long food lines across the country, initial unemployment claims inching higher, not to mention dramatic COVID-19-related headlines, can seem perplexing, indeed contradictory. But amid a backdrop of increasing clarity regarding the presidential transition, and a raft of positive news surrounding coronavirus vaccine efficacy and safety, market performance on Nov. 24 was enveloped by hope that the other side of the pandemic was within view. It was hard to find a sector that didn't enjoy the mere possibility of a more normal business and social landscape.

As the holiday season begins, coronavirus caseloads rose to over 13 million, with concern mounting that with heavy Thanksgiving travel, cases will continue to spike. A record 90,000 Americans are hospitalized by the disease. Regardless of the data and the very real possibility that consumer confidence, which has started to weaken, could weaken further as the labor market suggests signs of slowing, investor enthusiasm brought both the S&P 500 and the Nasdaq Composite to record closing highs. With technology stocks once again taking the lead, it appears that investors, at the end of November, are seeking areas of the market that offer steadfast growth in the short term.

As investor enthusiasm continues to transition from neutral to extremely bullish, as recorded by the American Association of Individual Investors, there's a gnawing sense that the froth that is building, coupled with the possibility of more restrictions and lockdowns, could see a slowing of economic momentum. Already, consumer confidence has inched lower, retail sales figures, which have helped fuel the recovery, have slowed, and unemployment claims are rising.

A pause in the market's fervor would not be unexpected, and would set the stage for a post-pandemic recovery, as the vaccines begin the process of lifting the economy, earnings and optimism.

Portfolios have been created based on the companies associated with every phase of the storage and delivery of the vaccines, and early on investors began building positions in the biotech/pharmaceutical names associated with vaccine development. The manufacturers of vials and rubber gloves that will be used in abundance have also been included in the lists of 'vaccine-related' portfolios.

There are the what-if worries surrounding the vaccines. What if there are distribution delays and problems? What if there are side effects not previously reported?

But above all else, the detour the U.S. took in March is on the cusp of taking us back to the path we were on, slowly but surely. It isn't if, but when. And when is just some months away.

Read Quincy Krosby's full December 2020 market commentary, 'Detour' (PDF).

References include the following: Associated Press, Barron's, Bespoke Investment Group, Bloomberg, CNBC, CNN, Cornerstone Macro Research, Discovery, The Economist, Evercore ISI, Federal Reserve, The Financial Times, Goldman Sachs, Merrill Lynch, Morgan Stanley, The New York Times, Politico, Renaissance Macro, Reuters, Science magazine, Real Money - TheStreet and The Wall Street Journal.

The views and opinions are those of the author at the time of publication and are subject to change at any time due to market or economic conditions. This document has been prepared solely for informational purposes. This is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The Prudential Insurance Company of America, Newark, NJ, and its affiliates. Prudential and its distributors and representatives do not provide tax, accounting, or legal advice. Please consult your own attorney or accountant. In providing these materials, the issuing companies and distributor listed above are not acting as your fiduciary as defined by any applicable laws and regulations.

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