U.S. Equity Markets Rise as Tech Shares Lead

The U.S. housing market remains red hot

U.S. equity markets rebounded after three days of losses as investors returned to their old patterns of buying big tech and stay-at-home stocks as more states order temporary closures due to record daily virus cases. Shares of Apple (AAPL) led the charge and shares of Tesla (TSLA) continued to rally following its upcoming inclusion in the S&P 500. 

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Some whispers of hope on stimulus talks made their way out of Capitol Hill and that may have added to the enthusiasm. The need for more direct help to Americans and small businesses grows more severe by the day as weekly unemployment claims rose for the first week in five. That's not a good sign as pandemic unemployment benefits are set to expire at the end of December.

share price chart

Equity markets remain range-bound, as we mentioned yesterday. Today's moves show there is more appetite for investors to take on risk, but they seem to want to stick with the stocks they rode in on.

Continued claims (insured unemployment)
Chart courtesy Federal Reserve Economic Data.

The Bad, the Good, and the Scary of the U.S. Labor Market

The Bad

The U.S. labor market has stalled in the past several weeks as the economy is facing more partial lockdowns and demand has not returned for several industries. Today we learned that 742,000 Americans filed for first-time unemployment benefits last week, which was a sudden rise after five straight weeks of declines. That level is more than three times higher than the roughly 210,000 typically filed each week in the first two months of 2020, though it is down sharply from a peak of nearly 7 million in late March. 

The Good

The number of people collecting unemployment benefits through regular state programs, which covers most workers, fell to 6.4 million for the week ended Nov. 7 from 6.8 million a week earlier. The good news is that continuing claims for unemployment continue to fall, and are now below levels reached in 2009 during the last recession.

All programs as % of total continuing claims
Chart courtesy Bespoke Investment Group.

The Scary

Millions of Americans who have exhausted their state benefits are now collecting money through a federal program that provides an extra 13 weeks of benefits. According to the Department of Labor, about 4.4 million people were receiving aid through this extended-benefits program in the week ended Oct. 31, up from 4.1 million a week earlier. This programs ends on Dec. 31, and without a new stimulus package with direct payments to these workers, their safety net will disappear. 

Share price chart for home builders

Home Builders Bounce

On the other end of the K-shaped recovery is the higher end of the U.S. housing market. According to the National Association of Realtors, October continued the streak of scorching home sales and rising prices. Here's a quick summary:

  • Existing-home sales grew for the fifth consecutive month in October to a seasonally-adjusted annual rate of 6.85 million — up 4.3% from the prior month and 26.6% from one year ago.
  • The median existing-home price was $313,000, almost 16% more than in Oct. 2019. Total housing inventory declined from the prior month and one year ago to 1.42 million, enough to last 2.5 months — a record low — at the current sales pace.
  • More than 7 in 10 homes sold in Oct. 2020 – 72% – were on the market for less than a month.

That is hot, and it has translated into strong stock performances for the nation's biggest home builders: KB Homes (KBH), Toll Brothers (TOL), and Pulte (PHM) (chart above).

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  1. National Association of Realtors. "Existing-Home Sales Jump 4.3% to 6.85 Million in October."

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