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Just another manic Monday. Stocks sold off Friday in response to the Treasury requesting their money back from the Fed. COVID cases are on the rise and political maneuvering put traders on edge.
N O T E W O R T H Y
A tight, tight rope. It’s Monday, which means we are due for a weekly shot of vaccine news… which we did get WHILE YOU SLEPT. AstraZeneca announced that its vaccine candidate was 70% effective overall while a double dose was 90% effective. The company will start shipping its vaccine by the end of the year and plans to distribute 3 billion doses globally in 2021. Those doses would be additive to the already 2 billion doses expected from Pfizer and Moderna. As one might expect, overseas stocks and futures rose in response to the news, which so far has overshadowed the stream of reports on the pronounced rise in virus positivity cases. Some European countries have enacted strict lockdowns to flatten the curve. The lockdowns have been successful in slowing down the spread of the virus but unfortunately, there has been a cost to their economies. Early this morning, quite literally WHILE YOU SLEPT flash Eurozone PMI’s showed a decline in both manufacturing and services. The services PMI fell from last month’s 46.9 to 41.3, which missed economists’ estimates and is attributed to recent lockdowns in the region. PMI’s give us a higher frequency read on economic health and numbers below 50 indicate a contraction. The declining, below-50 readings have led to some economists forecasting a decline in 4th quarter GDP with some even modeling the potential for a double-dip recession for the Eurozone. The US response to recent virus outbreaks has been less draconian than the EU-style lockdowns, however the next 4 to 6 weeks have the potential to see more aggressive mandates as the holiday season is expected to steepen the curve. This puts stocks in a very precarious position as indexes, though they experienced some consolidation last week, remain just below all-time highs, driven by the recent spate of positive vaccine news. With elections mostly behind us, the results have many fearing that any much-needed stimulus will be on the smaller side. A lack of stimulus at this most critical time could prove to be a significant setback for companies and individuals who have managed to ride out the storm heretofore. The Federal Reserve has been a steady and true backstop for financial markets, the banking community, municipalities, and corporations throughout the pandemic. The central bank is set up to be non-partisan and acts independently, though they do take quite a bit of public pressure from politicians. Unfortunately, on Friday political pressure went beyond the bully pulpit as the Administration pulled funding from the Fed’s lending programs set to expire at the end of the year… at this most critical time. Though the Fed was quick to appeal the decision, the Administration did not concede. With the incoming administration able to reverse the decision, we will still have to wait until inauguration. Once again, all of this pressure comes while the economy is vulnerable of losing positive momentum. Starting next week, fund managers will begin to rebalance their portfolios for year-end and some will find themselves in a position to lighten up on equities, which have become overweight due to their outperforming of fixed income. This housekeeping has the potential to put further pressure on equities. Will all of the positive news on the vaccine front continue to power stocks forward into the new year and through inauguration? It is too early to tell, but the road ahead is certainly appearing to be more and more treacherous.
THE MARKETS
Stocks sold off on Friday in response to the Administrations’ request of funding back from the Fed. Rising COVID positivity numbers were also daunting to traders who chose to take profits. The S&P500 fell by -0.68%, the Dow Jones Industrial Average gave up -0.75%, the Russell 2000 Index gained +0.07%, and the Nasdaq Composite Index slipped by -0.42%. Bonds rose and 10-year treasury yields were flat at 0.82%.
NXT UP
- Chicago National Activity Index (Oct) is expected to have remained constant at 0.72.
- Markit Manufacturing PMI (Nov) may have slipped slightly to 53.0 from 53.4.
- Markit Services PMI (Nov) is expected to have fallen to 55.0 from 56.9.
- Today’s Fed speakers include Barkin, Daly, and Evans.
- This shortened trading week will include some more earnings announcements along with housing numbers, Consumer Confidence, regional Fed reports, GDP, PCE Deflators, Durable Goods Orders, University of Michigan Sentiment, and the FOMC meeting minutes. Please refer to the attached economic and earnings calendars for details.
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