Veered Off

Veered off.  Stocks sold off yesterday as virus cases surge and more stimulus became more elusive.  Stocks reversed course from earlier in the week, returning to the here-and-now trade, driven by the pandemic.

N O T E W O R T H Y

Temperatures rise.  Wow, calling the past two weeks in the market extremely extreme, may be an understatement.  Though it may not seem like it on the ground, we as investors had a lot to digest since late October.  There was good news, bad news, and news that we would have to wait and see what happens.  Of course, the latter is the one that causes most amount of the problems.  Good news: Pfizer’s vaccine appears to work and may be available on a limited basis soon, Moderna is next up and expected to make similar encouraging announcements soon, corporate earnings were not too terrible, and the elections are mostly over.  The bad news: we have not turned the corner on the pandemic as we see positivity levels shoot up around the country… well that pretty much sums up the bad news.  With all of the political wrangling and sensational news reporting in the past few weeks, it was easy to forget that we are still in the throws of a pandemic… but we are.  The economy, according to the latest reporting, was able to bounce back as a result of the re-openings that began in the third quarter, but there are signs that the recovery is stalling and in need of further monetary intervention.  So what is waiting for us in the month’s ahead?  We got a little glimpse of that yesterday when the Mayor of Chicago issued a stay-at-home advisory and New York’s Mayor tightened dining and social restrictions, warning that school shutdowns may be next.  As one might expect, those two news events accelerated yesterday's selling in stocks.  As the final few Presidential votes are counted (and recounted), the markets and world leaders appear to be accepting Joe Biden as the next US President.  He has made it clear that he would address the pandemic quickly and aggressively, announcing his team of experts just days after the first election results were reported. That is good news on the healthcare front.  On the economic front, that is good-long term news as a full re-ignition of the economy can only occur once the virus is under control, which it is not… but it will be.  In the near future however, it appears that more directed restrictions may make that road to longer-term prosperity bumpy.  That brings us to government stimulus. Lawmakers failed to produce a follow-up to the Cares Act in the week’s prior to the elections but hope that one was forthcoming offered some salve to the markets.  The odds these days appear to be leaning to split Congress with Mitch McConnell remaining the Majority Leader.  If you recall, McConnell was in favor of a much smaller, more directed stimulus package than the one being negotiated by House Speaker Pelosi and Treasury Secretary Mnuchin.  Yesterday, Administration officials backed away from negotiations, stating that it would be up to Congress to negotiate a deal.  The final control of the Senate appears to be hinging on a Georgia runoff election in January, leaving Senators very little motivation to act quickly or aggressively.  The market recognized this as less stimulus later on, which also added to a bearish mood in yesterday’s session.  Well, there was some good news yesterday. Weekly employment data from the Department of Labor showed that 42,000 fewer initial unemployment claims were made last week, less than expected. Also slightly less than expected were Continuing Employment Claims, which came in at 6.786 million, less than the prior week’s reported 7.222 million filings.  So, it seems likely, that the road ahead will be filled with more ups, downs, closings, openings, re-openings, rotations, pivots, and… waiting.  BUT, at least we know what that road looks like, which is in sharp contrast to last March when nobody knew what to expect.  As I have said many times, markets can deal with good news and bad news, it is no news that it struggles with… and it appears that we will be getting plenty of news in the months, if not days, ahead.

THE MARKETS

Markets traded down yesterday on news of surging virus cases, a lack of stimulus, and restriction announcements in New York and Chicago.  The S&P500 lost -1.00%, the Dow Jones Industrial Average traded off by -1.08%, the Russell 2000 Index dropped by -1.64%, and the Nasdaq Composite Index gave up -0.65%. Bonds traded up and 10-year treasury yields slipped by -9 basis points to 0.88%.

NXT UP

- PPI Excluding Food and Energy (Oct) is expected to have grown by +0.2% compared to last month’s +0.4% growth.

- University of Michigan Sentiment (Nov) may show a preliminary increase to 82.0 from 81.8.

- New York Fed President John Williams and St. Louis Fed President James Bullard will speak today.

- Next week will feature Retail Sales, Industrial Production, housing numbers, regional Fed reports, and the Leading Index. Check back on Monday for calendars and details.

daily chartbook 2020-11-13