Meh. Stocks pared gains on Friday as Congress continued its dance in the chambers of Capitol Hill. Higher than average pre-holiday volume, changes to the S&P500, and options expirations caused some discomforting volatility.
N O T E W O R T H Y
Check’s in the mail? It was a weekend full of news, if you were paying attention. Last week's markets provided investors with a bumpy ride as investors awaited more anticipated vaccine news while Congress was… well very Congressional, finding new things to disagree upon in the minutes before deciding to agree on something else completely. Meanwhile, businesses are struggling, more people are out of work, and the virus is just not letting up. Still, stocks managed to log a positive week adding some new highs in the wake of the prior week’s losses. After the close on Friday, Moderna received FDA approval for its vaccine adding some heft to the arsenal being amassed in our fight against the virus. WHILE YOU SLEPT, millions of doses were shipped and are expected to start being injected today. Yesterday, Congress finally, finally, finally agreed to a $900 billion stimulus package! Both chambers are expected to vote on the bill today while the President has already announced that he would sign it. So, some help is on the way. This bill appears to include a $600 stimulus check, help for small businesses, more funding for vaccines, extended unemployment benefits, funding for hard-hit transit systems, and help for the entertainment industry. Like so many things these days, everything is getting so big that it is difficult to gauge the value of things. Markets, sodas, SUV’s, cupcakes, homes… big is in. So, Congress is poised to pass a $900 billion stimulus bill, and many people’s first reaction is: “really, that’s all… meh”. Well, I suppose one would think that given that the CARES Act from earlier in the year provided north of $3 trillion with a “T”. Ok, to put things into perspective, let’s turn to The Great Recession. That recession earned its “Great” moniker due to the violent economic downturn caused by the bursting housing bubble and simultaneous near-collapse of the global banking system. To help the economy climb out of that, what at the time was referred to as, “unprecedented” predicament, Congress passed the Emergency Economic Stabilization Act of 2008 (EESA). That Act enabled what most remember as TARP, the Troubled Asset Relief Program. TARP provided for up to $700 billion to help affected companies. Ultimately, that amount was reduced, yes reduced, to $475 billion after a few years, once it was realized that only $413 billion had been dispersed. Back then Starbucks' largest drink was a Grande, which holds 16 ounces. Later on, they did add the Venti, which holds 24 ounces. But wait… in an unprecedented move, Starbucks introduced the 31 ounce Trenta in 2011 which, I am informed, is larger than the Average capacity of a human stomach. Anyway, if you want more than a Trenta, I suppose you just have to order two of them. That said, what appeared as unprecedented back in 2008 was trumped by the unprecedented disaster that began earlier this year with the pandemic. The latest $900 billion pledged by the Government will certainly help the faltering economy and the many families who are still struggling to hold on until the pandemic ends. So, on to the final bit of news from the weekend. There appears to be a new strain of the virus in the UK, which seems to be more easily transmitted. That can’t be good. Last night, as futures opened, someone said to me “the markets should be up on the stimulus and vaccine news”. My reply was something like “a lot can happen between now and tomorrow morning's open”. Further, the markets have already factored those two things in. They were, in fact, the principal drivers of the markets' achieving new highs last week. What has not yet been factored in is the new mutant strain of the virus. That news sent futures lower in Asia and Europe overnight. The market also will open with Tesla being officially part of the S&P500. It should come in right below Google and above Berkshire Hathaway. Yeah, that’s big. It will be the 5th largest weighted company on the large cap index. By the way, all of the funds that mirror the S&P500 will have to buy the stock. Also, it is important to note that in order to add and buy Tesla, fund managers have to sell other things. That will likely add some weight to the index members. That selling started Friday.
THE MARKETS
Stocks slipped on Friday as Congress failed to reach an agreement on the next level of stimulus for the faltering economy. Quadruple witching and Tesla’s pending addition to the S&P500 at the close added lots of volume… and volatility. The S&P500 fell by -0.35%, the Dow Jones Industrial Average sold off by -0.41%, the Russell 2000 Index dropped by -0.41%, and the Nasdaq Composite Index slipped by -0.07%. Bonds also slipped and 10-year treasury yields added +1 basis point to 0.94%.
NXT UP
- Chicago Fed National Activity Index (Nov) is due out this morning after logging 0.83 last month.
- This will be a short, but impactful market week. Stocks close early on Thursday and remain closed on Friday for Christmas. Yah, it’s here and so is Winter, which arrived earlier this morning, officially, as I riffled though the morning's financial news.
- Later this week we will get all of the monthly GDP figures, the Conference Board’s Consumer Confidence, Existing Home Sales, Durable Goods Orders, FHFA Housing Index, and University of Michigan Sentiment. Please refer to the attached economic calendar for details.