Markets Post Second-Straight Week of Gains

U.S. equities finished higher, marking a second-straight week of gains, while notching fresh record highs along the way. Vaccine optimism continued to be the main catalyst, while hopes for fiscal relief measures resurfaced to also lend a hand. Today's November nonfarm payroll report garnered attention and appeared to buoy the fiscal relief optimism, as job growth missed noticeably and the report offered some somber data on permanent job losses and long-term unemployed. Treasury yields continued their rise amid a decline in bond prices, particularly on the long-end of the curve, while the U.S. dollar ticked higher, pausing a recent drop to multi-year lows. Crude oil prices were higher after OPEC concluded a delayed meeting with an agreement to gradually reduce oil production cuts in 2021, while gold pared a weekly rebound. In light equity news, DocuSign topped quarterly revenue estimates and raised its outlook, while Ulta Beauty also exceeded bottom line estimates, but continued to hold off on providing guidance. Markets in Europe and Asia also finished higher.

The Dow Jones Industrial Average rose 249 points (0.8%) to 30,218, the S&P 500 Index was up 32 points (0.9%) at 3,699, and the Nasdaq Composite advanced 87 points (0.7%) to 12,464. In heavy volume, 975 million shares were traded on the NYSE and 5.0 billion shares changed hands on the Nasdaq. WTI crude oil was $0.62 higher at $46.26 per barrel and wholesale gasoline added $0.01 to $1.27 per gallon. Elsewhere, the Bloomberg gold spot price fell $4.39 to $1,836.69 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—increased 0.2% to 90.85. Markets were up for the week, as the DJIA was up 1.0 %, the S&P 500 advanced 1.7%, and the Nasdaq Composite increased 2.1%.

DocuSign Inc. (DOCU $243) posted a Q3 loss of $0.31 per share, or earnings-per-share (EPS) of $0.22 ex-items, versus the FactSet estimate calling for EPS of $0.13. Revenues rose 53.0% year-over-year (y/y) to $383 million, topping the Street's $361 million expectation, with billings jumping 63.0%. The eSignature company said as companies accelerate the digital transformation of their business and agreement processes, its role as an essential cloud platform continues to grow. DOCU increased its full-year revenue and billings guidance after issuing a stronger-than-expected Q4 revenue outlook. Shares rallied.

Ulta Beauty Inc. (ULTA $280) reported Q3 EPS of $1.32, or $1.64 ex-items, compared to the projected $1.49, as revenues decreased 7.8% y/y to $1.6 billion, roughly in line with expectations. Q3 same-store sales were down 8.9% y/y, versus the forecasted 9.6% drop. ULTA said its financial results continue to be impacted by the COVID-19 pandemic and efforts to contain it. The company continued to hold off on providing full-year earnings guidance after it withdrew its forecasts in March, but noted that nearly all of its stores are open for retail and said it could restart its stock repurchase program in Q4. Shares were lower.

Schwab's Chief Investment Strategist Liz Ann Sonders offers her 2021 U.S. Market Outlook: Better Days?, noting how stocks are closing out 2020 having crossed the COVID chasm; but the economy has more rough terrain to traverse. She adds that vaccines represent the light at the end of the tunnel; but we will enter 2021 still in the tunnel. Liz Ann concludes that the outlook for 2021 looks sunnier; but frothy sentiment near-term remains a risk.

For more on our 2021 outlooks for stocks, bonds and the global markets, as well as timely strategies on how to navigate the volatile market conditions, check out our Market Insights page on www.schwab.com, and follow us on Twitter at @SchwabResearch.

November employment report misses, trade deficit smaller than expected, factory orders beat Nonfarm payrolls (chart) increased by 245,000 jobs month-over-month (m/m) in November, compared to the Bloomberg forecast of a 460,000 rise, and following October's downwardly-adjusted gain of 610,000. Excluding government hiring and firing, private sector payrollsgrew by 344,000, versus the forecasted rise of 540,000 after advancing by a negatively-revised 877,000 in October. Average hourly earnings moved 0.3% higher m/m, versus projections to match October's unrevised 0.1% gain. Y/Y, wages were 4.4% higher, above estimates of a 4.2% increase. Average weekly hours remained at October's unrevised 34.8 rate, in line with forecasts.

Notable job gains were seen in transportation and warehousing, professional and business services, and health care, while employment declined in government and retail trade.

The unemployment rate decreased to 6.7% from October's 6.9% rate, matching forecasts. The labor force participation rate declined to 61.5% from October's 61.7% rate, where it was expected to remain, as more people left the workforce. Also, although the number of permanent job losers was little changed m/m at 3.7 million, the figure is 2.5 million higher than in February. Finally, the number of long-term unemployed—those jobless for 27 weeks or more—increased by 385,000 to 3.9 million, accounting for 36.9% of the total unemployed.

The trade balance (chart) showed that the October deficit widened by a smaller amount that anticipated, coming in at $63.1 billion, compared to forecasts of $64.8 billion, after September's downwardly-revised deficit of $62.1 billion. Exports rose 2.2% m/m after September's 2.4% gain, and imports increased 2.1% after the prior month's 0.6% rise.

Factory orders (chart) rose 1.0% m/m in October, versus estimates of a 0.8% gain, and compared to September's upwardly-revised 1.3% gain. This was the sixth-straight monthly rebound from the historic 13.5% tumble in April which followed the 11.0% fall in March.

Treasuries declined despite the employment data, as the yield on the 2-year note was flat at 0.15%, the yield on the 10-year note rose 5 basis points (bps) to 0.97%, and the 30-year bond rate gained 7 bps to 1.74%.

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 as data eyed along with recent rally, Asia also sees gains

European equities finished higher against the backdrop of vaccine optimism that has boosted expectations of an expedited economic recovery in 2021 and overshadowed the near-term potential headwinds due to the persistent spikes in virus cases. Economic data on both sides of the pond was also eyed, with a stronger-than-expected rise in German factory orders for October being met with the softer-than-expected U.S. November job growth, though the employment data seemed to buoy fiscal relief hopes for the world's largest economy. The markets also paid some attention to key Brexit talks between the U.K. and the European Union, which have yet to reach an agreement, as the year-end deadline looms. The delayed meeting between OPEC and its allies, known as OPEC+, concluded with an agreement to gradually ease oil production cuts next year. The Energy sector moved higher, extending a recent rally that has helped lead the surge in stocks as of late, along with other cyclically-natured sectors, while Financials traded higher, adding to a recent rise. However, the Materials and Utilities sectors were lower. The euro was little changed and the British pound gained modest ground versus the U.S. dollar. Bond yields in the Eurozone and the U.K. were mostly higher. For a look at the markets amid this backdrop, check out the Schwab Center for Financial Research's 2021 Schwab Market Outlook: On the Path to Recovery.

The U.K. FTSE 100 Index was up 0.9%, France's CAC-40 Index rose 0.6%, Germany's DAX Index was 0.4% higher, Spain's IBEX 35 Index advanced 1.5%, Italy's FTSE MIB Index gained 0.8%, and Switzerland's Swiss Market Index increased 0.2%.

Stocks in Asia finished mostly to the upside, matching the action seen this week, with the global markets remaining buoyed by recent positive economic data, progress on the COVID-19 vaccine front, and resurfaced hope of further fiscal relief in the U.S. However, concerns about the near-term impact of the resurgence of virus cases likely continued to keep gains in check, and weighed on Japanese stocks as the Nikkei 225 Index declined 0.2% with the yen holding onto yesterday's strength. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, provides his 2021 Global Outlook: New Cycle, New Leadership, noting how we expect a near-term economic double-dip for the global economy to give way to a vaccine-led broad recovery in 2021. Economic data in the region remained relatively positive with Australia's October retail sales rebounding. Also, the Reserve Bank of India held its monetary policy stance unchanged as expected but noted that it decided to continue with its accommodative stance "as long as necessary" to revive growth on a durable basis. China's Shanghai Composite Index ticked 0.1% higher and the Hong Kong Hang Seng Index increased 0.4%. Australia's S&P/ASX 200 Index advanced 0.3%, South Korea's Kospi Index rose 1.3% and India's S&P BSE Sensex 30 Index moved 1.0% to the upside.

Stocks extend rally to record highs as rotation continues

U.S. stocks posted the second-straight week of gains with persistent COVID-19 vaccine optimism extending the rotation into economically-sensitive stocks and sectors that have underperformed. Moreover, hopes of further fiscal relief resurfaced as frozen discussions on Capitol Hill thawed, adding to the bullish backdrop that includes a continued "all-in" Fed monetary policy accommodation to keep financial markets functioning properly and interest rates at very low levels. Fed Chief Jerome Powell reiterated the Fed's pledge and he and Treasury Secretary Steven Mnuchin continued to stress the importance of further fiscal support during their two-day Congressional testimony.

As such, the Energy sector led the way, rallying solidly amid the optimism regarding a potentially quicker pace of economic recovery in 2021. Health Care and Financials also contributed to the week's gains, along with the Information Technology sector, which continued to find demand amid uncertainty regarding how long the tunnel is to a post-pandemic economy. The defensively-natured Utilities sector underperformed, falling more than 1.0% for the week. Global economic data continued to paint a recovery, headlined by stronger-than-expected Manufacturing PMIs for November, while a larger-than-expected moderation in initial jobless claims was countered by Friday's softer-than-anticipated nonfarm payroll report.

Treasury bond prices came under pressure, boosting yields, with the rate on the 10-year Treasury note approaching the 1.0% mark, while the U.S. Dollar Index extended a recent drop to levels not seen since the Spring of 2018. WTI crude oil prices rose for a fifth-straight week and gold prices rebounded from last week's drop.

Next week, along with the continued focus on vaccine progress and fiscal relief developments, the markets will have to contend with an economic calendar that will yield some inflation data, courtesy of the releases of the Consumer Price Index (CPI) and the Producer Price Index (PPI). Also, the consumer will be in focus as the week will conclude with the preliminary December University of Michigan Consumer Sentiment Index. Other reports due out next week that could move the markets include, initial jobless claims for the week ended December 5, the NFIB Small Business Optimism Index for November, and the October Job Openings and Labor Turnover (JOLTS) report.

Next week's international economic calendar is also poised to deliver some data points that could command attention as reports worth noting include: Australia—consumer confidence. China—November reports on the trade balance, CPI and PPI, and lending activity. Japan—October household spending, labor earnings and core machine orders figures, as well as Q3 GDP. Eurozone—Q3 GDP and the European Central Bank monetary policy meeting, along with German December investor confidence, and October reads on the trade balance and industrial production. U.K.—October industrial/manufacturing production and GDP reports, and the Bank of England's November inflation outlook.

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. 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.

Important Disclosures

Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.

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Markets Post Second-Straight Week of Gains

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