Market Week in Review

Market Week in Review is a weekly market update on global investment news in a quick five-minute video format. It gives you easy access to some of our top investment strategists.


 

What’s powering the rally in U.S. small cap stocks?

On the latest edition of Market Week in Review, Senior Portfolio Manager Megan Roach and Research Analyst Brian Yadao discussed the latest developments in the race for a coronavirus vaccine, in addition to government responses to the surge in COVID-19 infections. They also chatted about the latest economic data releases and the recent strength of U.S. small cap stocks.

SUBSCRIBE TO OUR BLOG

 


 

 


CONNECT & FOLLOW US

On Twitter On YouTube On LinkedIn Our Podcasts

Vaccine developments: Pfizer, Moderna report high efficacy rates

Markets cheered on additional good news from the vaccine front the week of Nov. 16, Roach said, including Pfizer’s announcement that its COVID-19 vaccine candidate has an efficacy rate of 95%. “This is an even higher rate than the drugmaker reported in preliminary results earlier this month—and it’s paved the way for Pfizer to file for emergency-use authorization of its vaccine with the U.S. Food and Drug Administration,” she stated. The company also announced that it expects to produce up to 50 million doses of the vaccine by year-end, with up to 1.3 billion additional doses in 2021, Roach said.

Adding to the positive developments, drugmaker Moderna announced Nov. 16 that its experimental COVID-19 vaccine also looks to be nearly 95% effective, she stated. In addition, more early data on vaccine candidates from AstraZeneca and Johnson & Johnson is expected to be released over the next several weeks, Roach said.

“All in all, the recent vaccine news has been very positive, and it suggests that the world may be looking at an increasingly robust pipeline of multiple effective vaccines. This boosts the timeline in which large-scale dosage could be available for the general population—to perhaps as early as the second quarter of 2021,” she remarked.

Governments tighten restrictions amid COVID-19 surge

Despite the progress on the vaccine front, the word is again grappling with a surge in COVID-19 infections, Roach said. This has led governments across the globe to institute new lockdown measures to slow the spread of the virus and prevent healthcare systems from becoming overwhelmed until a vaccine is widely available, she explained.

“In the past week alone, governments in France, Germany, Australia and Japan have tightened lockdown measures, with new restrictions also ramping up in the U.S. at the local level,” Roach said, noting that in New York City, in-person schooling was called off Nov. 19, with indoor dining likely to be suspended soon.

With cases surging, European Central Bank President Christine Lagarde signaled support for a near-term monetary stimulus package in December, while also urging European Union leaders to make pandemic relief available without delay, she stated. Meanwhile, in the U.S., the chances of additional fiscal stimulus before the end of 2020 appear to have dimmed, Roach remarked, with the Senate now on recess until after the Thanksgiving holiday.

October retail sales: Strong in UK, weaker in U.S.

Turning to the latest economic data, Roach said that numbers released the week of Nov. 16 offered mixed signals on the health of the global economy. “The data from the UK was more encouraging, with consumer prices in October rising by 0.7% on a year-over-year basis—the highest reading in three months,” she noted. In addition, October UK retail sales increased by 1.2% from September, marking the sixth consecutive month of gains, Roach said.

“This was a positive surprise, as consensus expectations were for a flat reading,” she noted, adding that the boost was likely driven by an earlier start to the holiday-spending season, due to consumer concerns over renewed lockdown measures.

The data was a little weaker in the U.S., Roach said, with U.S. retail sales in October inching up just 0.3% from the previous month—the smallest increase since the nation’s economy began reopening in May. On the employment side, U.S. initial weekly jobless claims also ticked up, from 711,000 in the week ending Nov. 7 to 742,000 in the most recent survey, she noted.

Another strong week for U.S. small cap stocks

Shifting to recent market performance, Roach said that U.S. equities ended the week of Nov. 16 largely flat, with non-U.S. stocks gaining roughly 1%. “This was a marked cool-down from the week prior, although we continued to see notable swings in style leadership as investor appetite fluctuated based on the latest news,” she explained. Overall, sectors of the market more sensitive to the economic recovery—such as energy, retail, travel and industrials—slightly outperformed more defensive and stay-at-home sectors, like technology, healthcare and utilities, Roach observed.

The week of Nov. 16 also saw continued market leadership from small cap stocks, she said. “These names tend to be more cyclical than large caps—and more sensitive to improvements in the economic cycle,” Roach stated, noting that the Russell 2000® Index of small cap stocks recently hit an all-time high for the first time since August 2018.

Overall, she expects market performance to remain choppy in the next few months, as new lockdown measures could cause temporary damage to the economic recovery, including fourth-quarter growth. Ultimately, however, Roach remains very constructive on the medium-term outlook, due to promising vaccine developments and the potential for additional stimulus.

Watch the video. Listen to the podcast. And subscribe.

Subscribe to our podcast

Get a deep dive into the investing world

iTunes

Buzzsprout

 

More insights

Russell Investments Blog

Managing through volatility

Global Market Outlook

Economic and market insights


These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page.

Investing involves risk and principal loss is possible.

Past performance does not guarantee future performance.

Forecasting represents predictions of market prices and/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment.

This material is not an offer, solicitation or recommendation to purchase any security. Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type.

The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional. The information, analysis and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual entity.

Please remember that all investments carry some level of risk.

Although steps can be taken to help reduce risk it cannot be completely removed. They do no not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.

Investments that are allocated across multiple types of securities may be exposed to a variety of risks based on the asset classes, investment styles, market sectors, and size of companies preferred by the investment managers. Investors should consider how the combined risks impact their total investment portfolio and understand that different risks can lead to varying financial consequences, including loss of principal. Please see a prospectus for further details.

The S&P 500® Index, or the Standard & Poor's 500, is a stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ.

The Russell 2000® Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.

Indexes are unmanaged and cannot be invested in directly.

Copyright © Russell Investments Group LLC 2020. All rights reserved.

This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an "as is" basis without warranty.

CORP-11777

Site preferences