Shake it up, shake it down. Stocks posted muted gains on Friday, giving up early session gains as selling ensued into the close. Strong retail sales figures combined with upbeat vaccine news from Pfizer stoked the rally.
N O T E W O R T H Y
Buy me to the moon. On Friday, stocks got a double dose of good news early on. Pfizer (PFE) announced that it would apply to the FDA for emergency use of its vaccine by late December, assuming no hiccups with the ongoing trial. This was good news considering that the markets had to digest somewhat disappointing vaccine news earlier in the week with Johnson & Johnson (JNJ) and Eli Lilly (LLY) both announcing temporary pauses in their pursuits of a vaccine. Markets like to hear good news in the fight against the pandemic, and rightly so! The second bit of good news came with the Census Bureau’s release of September Retail Sales figures. The top line number showed that sales increased by +1.9% for the month, beating analyst estimates of an +0.8 increase and besting last month’s +0.6% growth. The month-over-month growth represents the 5th consecutive monthly gain leading many economists to believe that the US is no longer in a recession. The benchmark for ending a recession is 2 consecutive quarters of GDP growth. As GDP is reported quarterly and lags by a quarter, we won’t know if we achieved that guideline for some time. Technically speaking, by the time we meet the benchmark, we will already be out of the recession. That is precisely why economists watch certain, more timely data very closely. In this case, Retail Sales showed some surprising developments, and some not-so-surprising upsets. Breaking down the release, we see markable improvements in Clothing, Sporting Goods/Hobby/Books/Music, Department Stores, and Non-store Retailers (AKA Amazon.com). The Food Services and Drinking Places category still grew at a rate of +2.07%, but growth slowed significantly since last month’s release. We all know that the services sector has been one of the hardest hit and the group must enjoy a full recovery before we can expect the economy and the labor market to regain their pre-pandemic health. With the onset of the “colder months” for most of the US, economists will watch that sub-category closely as many eateries relied on outdoor dining to avoid strict COVID restrictions. A recent surge in virus cases in Europe and parts of the US will certainly place a higher level of import on these numbers going forward. zaSpeaking of going forward, on Friday we also received University of Michigan Sentiment (Oct) which came in at 81.2, beating expectations, slightly higher than last month’s 80.4. While the increase is positive, the numbers are far lower than their pre-pandemic levels. Breaking down the number, we see that sentiment about current conditions has waned while expectations about the future have improved. The development should not be surprising given the recent upturn in virus positivity and lack of a follow-on stimulus plan. Consumers turning to retail therapy to ease some of their anxiety about current conditions can only be a good thing on the road to economic recovery.
THE MARKETS
An early rally fizzled on Friday as investors took profits late in the session. Good news about the economy, sentiment, and the race for a vaccine helped propel equities to a mixed close. The S&P500 rose by +0.01%, the Dow Jones Industrial Average added +0.3.9%, the Russell 2000 Index slipped by -0.31%, and the Nasdaq Composite Index fell by -0.36%. Bonds slipped slightly and 10-year treasury yields added +1 basis point to 0.74%.
NXT UP
– NAHB Housing Market Index (Oct) is expected to come in at 83, same as the prior period.
– Fed Chairman Jerome Powell will speak on an IMF panel today. Additional Fed speakers today include Williams, Clarida, Kashkari, Bostic, and Harker.
– This morning Halliburton and IBM beat estimates and we will hear from Cadence and PPG Industries after the bell.
– The week ahead will be filled with lots of important earnings releases, housing numbers, the Fed Beige Book, Leading Index, and Markit Manufacturing/Services PMIs. Please refer to the attached economic and earnings calendars for details.
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