Stocks next week will come off one of their best months ever into a busy week of economic data and the ongoing tensions between the spreading virus and positive news on vaccines and treatments.
Another highlight of the week is expected to be Tuesday's testimony from Fed Chairman Jerome Powell and Treasury Secretary Steven Mnuchin before the Senate Banking Committee. They will be discussing the emergency measures taken to help the economy after the outbreak of the pandemic.
The Dow was up nearly 13% for November so far, and if it holds its gains into Monday's close, it will chalk up its best month since January, 1987. The S&P 500 closed at a record 3,638 and was up 11.3% for the month. The gain is its best performance since April's 12.7%, which was the third best month for the S&P 500 since its origin in 1957.
November was a big month also for market rotation, with investors favoring stocks that would benefit from a rebounding economy and showing less love for long-held favorites among big tech and internet names. Financials were up more than 17% in the past month, and industrials rose nearly 15%, as investors bet vaccines would help the economy return to normal next year.
Tech notched a single digit gain for the month so far and lagged the broader market. But some strategists expect big tech and internet names, stay-at-home stocks, to fare better in December.
"The death of big tech has been announced over and over again, and we see that the market doesn't abandon them, but in fact migrates to big tech whenever there are concerns," said Quincy Krosby, chief market strategist at Prudential Financial. "The post-pandemic question is whether big tech can co-exist with the small and mid-cap." Small caps were one of the biggest winners in November, with the Russell 2000, up 20.6%.
"We did not see major selling in Nasdaq," as investors put funds in cyclicals and value, she said. Nasdaq was up 11.9% for the month so far, slightly better than the S&P 500.
Experts have warned that there could an even bigger surge in virus cases, following the Thanksgiving holiday which could start to show up in the coming week. There have been more than 12.6 million cases in the U.S.
There are some important economic reports in the week ahead, the most important being Friday's November employment report. There is is also ISM manufacturing data Tuesday.
"My thought here is the data is going to matter because if you listen to the Fed, and if you read through the Fed's minutes, they're in transition here. They're becoming more concerned about the rise in Covid cases, certainly about the lack of fiscal support," said Gregory Faranello, head of U.S. rates at AmeriVet Securities.
Strategists say another key report will be weekly jobless claims, which showed an increase in each of the last two weeks. "The employment data clearly has been weakening," said Faranello. If it continues, it will keep a lid on Treasury yields, which move opposite prices.
Jefferies economist Tom Simons expects the elimination of Census Bureau workers to detract from the job gains in November, and he forecasts the economy added just 340,000 jobs.
"It is hard to envision a particularly strong report coming out on Friday," noted Simons.
Bank of America economists forecast just 150,000 payrolls were added for November, compared to 638,000 in October. The private sector is expected to add 300,000, but expected government layoffs impacted total payrolls in their forecast.
Faranello said he expects the bond market to be much more active than normal this December because of the pending change in the White House, as well as the runoff election in Georgia Jan. 5 that will decide whether Republicans keep their Senate majority. The market has also been concerned about the lack of stimulus from Washington.
"The theme in the market right now is definitely hope and optimism versus the on the ground dynamic with Covid," said Faranello. "The real question is can the vaccine rally hold up if we see the virus rise and we continue to see shutdowns. How does the market perform in light of that?"
Krosby said she expects the market to watch for vaccine news. "The question I think is now whether or not we see the emergency authorization given to Pfizer and followed by Moderna," she said. "I think that is a catalyst to the market because that is when you will start to see the vaccine distributed." The Food and Drug Administration's vaccine advisory committee has a meeting set for Dec. 10 to discuss emergency authorization for the Pfizer
Analysts expect investors to continue to gravitate to value and cyclicals, since they could have the biggest gains compared to already high priced big tech. But tech is still attractive.
"We still see the Nasdaq leading," said Krosby. "Whereas we enjoyed the vaccine related boom in the market, the fact is that investors and and traders are looking for big tech names to give them that growth in earnings and revenues."
9:45 a.m. Chicago PMI
10:00 a.m. Pending home sales
Monthly vehicle sales
9:45 a.m. Manufacturing PMI
10:00 a.m. ISM Manufacturing
10:00 a.m. Construction spending
12:00 p.m. ECB President Christine Lagarde at Atlantic Council, introduced by former Fed Chair Janet Yellen
1:15 p.m. San Francisco Fed President Mary Daly
8:15 a.m. ADP employment
9:00 a.m. New York Fed President John Williams
10:00 a.m. Philadelphia Fed President Patrick Harker
1:00 p.m. New York Fed's Williams
2:00 p.m. Beige book
8:30 a.m. Initial jobless claims
9:45 a.m. Services PMI
10:00 a.m. ISM nonmanufacturing
8:05 a.m. New York Fed's Williams
8:30 a.m. Employment report
8:30 a.m. International trade
9:00 a.m. Chicago Fed President Charles Evans
10:00 a.m. Factory orders