Jobs Report Shows Retail Industry Hard Hit Amid Virus Resurgence In November

The big economic news this morning is the government’s latest jobs report, which came in below expectations. But before that came out, investors and traders seemed optimistic, as stimulus talks seem to be picking up steam in Washington. 

That hope, enhanced by optimism about a vaccine, seems strong enough to enable the market to shrug off the worse-than-forecast jobs report.

Employment Report: A Peek Under The Hood

The jobs number came in a good bit worse than expected, showing that the economy added just 245,000 jobs in November amid a coronavirus surge. A Briefing.com consensus had expected this morning’s payrolls report to show a gain of 650,000 new jobs. However, according to MarketWatch, economists were expecting the economy to have added just 438,000 jobs.

But investors appeared to take some comfort in the fact that a big chunk of job losses, which weighed on the total number, came from retail trade. That category lost nearly 35,000 jobs, but it was probably expected as that is a part of the economy that tends to do worse when the pandemic gets worse and governments increase restrictions.

Still, the retail industry could be worth keeping an eye on as the holiday shopping season progresses—particularly among some “mall mainstays” like Macy’s Inc M, Dillard’s, Inc. DDS, and Abercrombie & Fitch Co. ANF, for which some analysts have put out cautionary notes this season. No matter how you slice it, it’s setting up to be a holiday like no other for retailers.  

Also from today’s report, the BLS highlighted “notable job gains” in transportation and warehousing, and professional and business services. Gains in these types of jobs could bode well for the outlook in the post-vaccine economy. 

Volatility Ebbs, Crude Advances, As Do Stimulus Talks 

A resumption in stimulus talks has helped equities this week, along with hopes for a COVID-19 vaccine, and as worry has been lessening since last month, Wall Street’s main fear gauge, the Cboe Volatility Index (VIX) has sunk to the low 20s. Meanwhile, increased risk appetite has helped beaten-down oil prices continue to recover, with WTI crude this morning at nearly $46 a barrel.

Even though the worst may be to come in terms of COVID-19 infections during the colder months of the year and a vaccine might not be widely available for some time, stocks have been hitting records on vaccine optimism as well as hopes about a fresh government stimulus package.

At first glance, it might seem jarring that the S&P 500 Index (SPX) has been posting record highs even as another wave of COVID-19 infections hits the United States. But keep in mind that the stock market is a forward-looking beast, meaning that current activity in the main indices may be reflecting a good bit of investor anticipation of what might happen months from now. 

That could include widespread distribution of one or more vaccines. The thinking is that it would alleviate the worst of the pandemic and help foster a resurgence in the consumer activity that helps support much of the economy of the U.S. and the world.

With that backdrop, the SPX was on track to post another record close Thursday. But that got derailed after the Wall Street Journal reported that supply chain issues factored into a decision to cut the Pfizer Inc. PFE and BioNTech SE BNTX vaccine rollout target. Still, the selloff wasn’t too dramatic, and the other two main U.S. indices ended in the green, as the companies had already made the reduced figure public last month.

It seems that other support remained in the market, including optimism from weekly unemployment data that showed initial claims fell more than expected and encouraging remarks from Senate Majority Leader Mitch McConnell. He said there were “hopeful signs” for getting a stimulus deal done this month and “compromise is within reach.” He and House Speaker Nancy Pelosi reportedly spoke Thursday.

In addition to a vaccine, another round of government stimulus has also been on Wall Street’s wish list because it also might help boost consumer spending.

OPEC+ To Raise Production; Oil Prices … Rise

These days, it seems worth mentioning every time the Energy sector outperforms the other SPX sectors because it’s been such a dramatic underperformer during the pandemic as expectations for global oil demand have been slashed amid the economic downturn. 

Oil producers got a boost Thursday—lifting the sector by more than 1%—as oil prices rose. (See chart below.) The commodity gained on Thursday despite OPEC and its Russia-led allies agreeing to a production increase of 500,000 barrels a day in January. (See more on that development below.)

In general, oil prices have been recovering amid hopes that a vaccine will help the economy and boost global demand. But it also seems likely that a weakening U.S. dollar has been playing a role in oil’s recovery. A lower greenback makes dollar-denominated oil less expensive for buyers using other currencies, potentially helping demand. 

CHART OF THE DAY: OIL’S RECOVERY CONTINUES: Oil futures have been rising in recent days as the U.S. dollar has fallen and as hopes have increased that widespread vaccine deployment will help the global economy. Crude futures got more help Thursday after an OPEC+ decision to raise production by less than previously announced. The $50 level has acted as a support level in the past (yellow line) and could now become the next resistance level to watch. Data source: CME Group. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.  

A Head Scratcher: Huh? Oil gained in price on news of more production at a time when global demand is still shaky because of the pandemic? Well, that 500,000-barrel increase was much smaller than the 2 million barrels a day that would have come online in January if the group hadn’t made changes. While the market was expecting existing cuts to be extended, a rise of 500,000 barrels per day doesn’t seem like that big of a deal in the larger scheme of things. Additionally, the Wall Street Journal reported that oil market experts thought the agreement was bullish for crude by showing cohesion among the producers. Raising production also seems to show that the producers may think the worst of the demand crimp from the pandemic may be over. But with the pandemic still raging, it seems like OPEC+ may have hedged its bets with a compromise between those that wanted to extend existing cuts and those who wanted a bigger production increase. 

Tesla Gets Upgrade: If there was a single-stock story of the day Thursday, it would probably be Tesla Inc TSLA. The electric vehicle maker was the most-traded stock on Wall Street by value, with about $25 billion in shares exchanged, according to Reuters, citing Refinitiv data. TSLA’s shares closed 4.32% higher at $593.38 apiece after Goldman Sachs upgraded the stock from “neutral” to “buy” and raised its price target to Wall Street’s highest estimate of $780 a share. The new estimate comes as electric battery vehicle adoption is accelerating, some governments move to phase out higher-emission vehicles, and the cost gap narrows between electric and gasoline-fueled vehicles as battery prices fall. After reporting five consecutive quarters in the black, TSLA is scheduled to join the S&P 500 index later this month.

History Lesson: While history is no guarantee of future results, the SPX’s performance through the end of last month may bode well for December’s market. The SPX gained more than 12% year to date through the end of November, even though it endured a 34% bear-market earlier in the year. “As a result of the double-digit YTD increase, history implies that the market will likely maintain this upward trajectory through the end of the year,” according to CFRA. The investment research firm noted that there have been 36 years since WWII when the S&P 500 recorded an 11-month gain of 10% or more. The following December then recorded a price gain 75% of the time, notching an average rise of 1.8%, CFRA said. “Catalysts that should support this move include the anticipated near-term rollout of COVID-19 vaccines combined with the growing expectation for a stimulus package to be passed before Congress heads home for the holidays,” CFRA said.

TD Ameritrade® commentary for educational purposes only. Member SIPC.

Photo by Arturo Rey on Unsplash