US equities opened mixed this morning following Thursday’s afternoon rally. Investors bought equities Thursday on COVID-19 vaccine progress and an eventual economic turnaround, in spite of higher COVID-19 numbers and continued Washington gridlock on a stimulus plan.
- Most sectors finished higher Thursday, with energy, technology, and consumer discretionary among the leaders.
- Healthcare, financials, and utilities lagged the broader market Thursday.
- Asian stocks ended Friday mixed.
- European equities are mostly higher during midday trading.
LEI signals moderating pace of recovery. On Thursday, the Conference Board released its Leading Economic Index (LEI) report for October, and it showed the series rose 0.7% month over month. While this number still signals continued future economic growth, it reinforces the notion that the pace of the recovery is slowing. We examine the implications for future economic growth in the LPL Research Blog.
Technical update. Stocks rose throughout Thursday’s session, moving from modest losses to gains for domestic indexes. The S&P 500 Index advanced 0.4%, while the NASDAQ and Russell 2000 Index gained 0.9% and 0.8% respectively. Over the past two weeks, the S&P 500 has appeared to be forming a bullish flag formation—a bullish continuation pattern if the index can remain above last week’s lows at 3511 and break out to the upside. Overly optimistic sentiment bears watching though.
COVID-19 news. US cases hit another record Thursday, rising 21.5% over the prior week to more than 182,000. The weekly increase in the seven-day average slowed this week and stands at 24.5% (source: COVID Tracking Project).
- Hospitalization growth remains slower than case growth after decelerating over the past 10 days; the seven-day average increased 21.2% over the past week.
- Pfizer, in partnership with BioNTech, will apply for emergency-use authorization of its COVID-19 vaccine today.
- California has imposed a 10 p.m. PT curfew on 94% of its residents.
- The US Centers for Disease Control and Prevention (CDC) issued a “strong recommendation” on Thursday that Americans refrain from traveling for the holiday.
Europe’s Lockdown 2.0 May Be Smarter
Real-time European COVID-19 and economic data provides an insight into how the pandemic is affecting economies around the world. We’re monitoring real-time data because traditional economic data is too slow to pick up the changes that are occurring.
Europe is now in the midst of a significant second wave of COVID-19 infections, and local governments have implemented new restrictions, or “lockdown 2.0,” across much of the continent. “The high-frequency data we monitor shows the new round of targeted lockdowns have limited people’s mobility in recent weeks,” said LPL Financial Equity Strategist Jeffrey Buchbinder. “The smarter restrictions will hopefully help mitigate the economic impact until a vaccine is widely available in 2021.”
In recent weeks, Europe has been facing a surge in COVID-19 infections with more than 2 million new cases reported by European nations last week. This is slightly down from the prior week as a new wave of targeted government lockdowns has taken effect across much of Europe.
These new lockdowns aimed at curbing the second wave in Europe have been instituted either nationally, such as in France, or on a more regional basis, like Italy and Spain. The one thing that most of lockdowns 2.0 have in common is that they appear to be “smarter” compared with those that were hastily put into place in the spring. Most of the new lockdowns are targeting areas of the economy that have been more closely linked to community outbreaks of COVID-19, like hospitality and recreation, while allowing lower-risk areas of Europe’s economies, like manufacturing and construction, to continue to operate.
Using data from the online restaurant booking system Opentable, we are able to see that lockdown 2.0 has targeted this industry and decimated in-person dining activity in Germany, Ireland, and the United Kingdom (UK). These are now back at levels near zero as seen during the first lockdowns. Earlier in the summer, dining in these countries had enjoyed recoveries back to above 2019 levels.
As shown below in the LPL Chart of the Day, the targeted nature of many of the new “smart” lockdowns appears to have allowed more people in Europe to continue to go to work, as measured by data from Google’s COVID Community Mobility Reports. During the initial lockdowns, the number of people going to work in the UK, France, and Italy fell by about 70%, compared to pre-pandemic levels, but so far have declined by only 10–20% since recent highs in mid-October. Germany appears to have coped the best, helped by the larger proportion of its workforce in the manufacturing and industrial sectors. Its citizens frequent their workplaces at a rate only 15% lower than in 2019 (up from a lockdown 1.0 low of down 52%).
The high-frequency data on lockdown 2.0 in Europe suggests that Eurozone and British gross domestic product (GDP) will take hits in the fourth quarter 2020, and potentially the first half of 2021, until a vaccine is widely available. However, the economic effects likely will not be as catastrophic as in the first set of lockdowns. The data reinforces our expectation that economies in Europe likely will contract more than the economy of United States in 2020 and underpins our preference for emerging markets equities over those in developed international markets.