Markets Brace for a Jam-Packed Week of News, Economic Data

We’ve said it before, but it bears repeating: We’ve come a long way this year. Markets fell deep into the swiftest recession in history back in spring, only to wage a torrid recovery that’s carried us to the end of the year. The economy and society adapted to new ways of working and consuming. No doubt, it’s been a challenging year for people the world over, but we’ve come a long way. In March, we didn’t have many tools to treat COVID-19, and a vaccine was a theoretical. Now, the first person outside a drug trial received a COVID-19 vaccine in Britain, and the first Americans are set to receive theirs this week — we’ve come a long way.

Apart from several hot IPOs, markets were focused on the ins and outs of the next round of coronavirus relief for Americans. With the vaccine rollout moving ahead, coronavirus aid remains the big question on Wall Street. Lawmakers didn’t have an answer last week, but they are set to discuss competing proposals this week in what’s shaping up to be a busy one on markets.

WALL STREET WRAP

Vaccine Rollout: An advisory panel of scientists on Thursday gave the green light to Pfizer’s COVID-19 vaccine, and the first vaccine batches have already shipped. Americans who are highest priority, such as frontline health care workers, could receive their first round of injections today. CVS on Friday said it plans to begin administering the vaccine to residents of long-term care facilities on Dec. 21 — the company has an agreement to do so with the federal government.

Britain started its mass vaccination rollout on Tuesday, kicking off what will likely become one of the largest global logistical undertakings in peacetime history. On the heels of Pfizer’s authorization, Moderna’s vaccine is also set for FDA advisory panel review this Thursday.

While the news wasn’t a major lift for stocks last week, it’s still critical that the vaccine rollout drives ahead on schedule. So long as the vaccination timeline meets baked-in expectations, markets will likely overlook the few difficult months for the virus that lie ahead.

Financial Aid Progress Stalls Again: Last week, attention returned to a coronavirus relief deal that remains elusive on Capitol Hill. However, a bipartisan group of lawmakers is set to pitch a $908 billion pandemic relief package on Monday. A separate $916 billion deal from Treasury Secretary Steven Mnuchin is also circulating. The clock is ticking on reaching a deal, as roughly 12 million Americans are at risk of losing unemployment benefits, millions more face potential eviction and businesses feel the sting with renewed coronavirus restrictions in many parts of the country. Initial jobless claims jumped to 853,000 last week, which was the highest since April.

The same sticking points that have hindered a deal for months haven’t been resolved. Both sides remain at odds about direct payments to Americans, legal immunity for companies and aid for state and local governments. Senator Joe Manchin, who helped draft the $908 billion bill, says he’s confident lawmakers can strike a deal before the holiday recess.

One Economy, Two Views: Despite a recent resurgence of the coronavirus and uncertainty about federal relief, consumer sentiment rose in December. According to preliminary survey data from the University of Michigan, sentiment rose to 81.4 in December from 76.9 in November. The current conditions and expectations subcomponents also rose.

When you peel back the cover on these numbers, the upward shift was driven by a sharp partisan divide. Democrats became much more optimistic about the economy following the election, while Republicans became far more pessimistic. The exact opposite occurred following the 2016 election.

“Just as four years ago, the post-election partisan shifts in economic expectations are too extreme to be justified by economic fundamentals,” wrote Richard Curtin, the survey’s chief economist.  

Recouping What Was Lost: U.S. worker productivity rose sharply in the third quarter. The U.S. Labor Department on Tuesday said revised nonfarm productivity (a measure of hourly output per worker) rose at a 4.6 percent annualized rate last quarter. Through Q3, the economy expanded at a historic 33.1 percent annualized rate (following a contraction of 31.4 percent in Q2). The economy has now recouped about two-thirds of output lost during the pandemic, and the economy looks poised to further close the gap in Q4. Long-term growth potential for the economy is a byproduct of the number of people working and how efficient they are, which makes the recent upswing in worker productivity encouraging.

Prices Rise Broadly in November: The consumer price index rose 0.2 percent in November on a seasonally adjusted basis after an idle October. Core prices, which exclude food and energy, were also up 0.2 percent last month. The energy index rose for the sixth consecutive month, with increases in the price of natural gas. Airline fares and lodging rose 3.9 and 3.5 percent, respectively. The strength of prices, namely in sectors sensitive to COVID-19, was notable given the rise in cases and restrictions.

Year over year, core CPI is up 1.6 percent, a figure that represents growth but is still well below the Federal Reserve’s target of 2 percent.

THE WEEK AHEAD

It’s shaping up to be a week packed with news and economic data, and that could potentially make for some choppiness. Here’s what we’re watching:  

Aid or No Aid? That’s the big question for markets this week. Can Congress get a deal done this year to help unemployed Americans and businesses? Markets will be watching closely, and a signed deal would certainly be a positive catalyst for markets heading into the close of the year.

Big Retail Report: November and December are prime time for retailers around the country, and on Wednesday we’ll see how sales were in November. Markets will be watching this number to gauge business and consumer health. Expect ecommerce to continue carving out a large chunk of market share.

Final Fed Meeting of 2020: Amid a data deluge, the Federal Open Market Committee (FOMC) will kick off its two-day meeting on Tuesday. We’ll hear about any policy moves and other commentary from Fed Chairman Jerome Powell Wednesday afternoon.

December PMIs: Also on Wednesday, we’ll get preliminary December IHS Markit PMIs for the services and manufacturing sectors of the economy — two closely watched indexes.

Housing Data: It continues to be a bright spot in the economy, and we’ll see if the trend continues this week. We’ll get builder confidence, housing starts and building permit reads this week.

Vaccine Rollout: As we mentioned, the first Americans could receive the vaccine this week, and Moderna’s emergency use application is set for review by an FDA advisory committee on Thursday.

Tesla to the S&P 500: Tesla is set to join the S&P 500 at the close of trading on Friday, replacing Apartment Investment and Management. Fund managers who track the index will need to lighten up on other index components to make room for the electric automaker. Tesla is the largest company by market cap ever added to the S&P 500, and it’s expected it to be one of the largest buy-on-close orders of all time with so many funds buying it.

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