Adrenaline Rush

Adrenaline rush.  Stocks jumped higher yesterday in hopes that new stimulus talks may result in… some much-needed stimulus. Traders ignored weak manufacturing data which missed expectations but still signaled expansion.

 

N O T E W O R T H Y

 

Show me the MONEY!  I try not to be too overt with my opinions, opting to provide my readers with enough information to formulate their own, informed judgments. However, I am sure that you noticed that I am a proponent of further economic stimulus.  I am, after all, tasked with watching global economies and markets closely and have seen the positive effects of prior fiscal stimuli.  For the record, I am also quite aware of the costs of providing the stimulus.  Earlier this year Congress passed the CARES Act that provided an unprecedented amount of fiscal stimulus, which combined with the Fed’s similarly unprecedented monetary stimulus, managed to stop the pandemic flash recession in its tracks and put it on a path to recovery.  There you have it, I used that most-overused word of 2020: unprecedented two times in just one sentence.  Need I remind you that the COVID crisis, WHICH IS STILL A THING, is an unprecedented event.  The CARES Act prevented an absolute economic catastrophe from occurring, and it was intentionally large and blunt.  The economy went from contracting, to once again, expanding.  Many businesses failed as a result of the de facto national lockdown, but many were saved by the stimulus.  Further, enhanced unemployment benefits carried many temporarily sidelined workers, enabling them to remain solvent as the crisis was being dealt with.  Speaking of the crisis, thankfully it is being dealt with as healthcare workers have discovered more effective treatment regimens while ingenious global pharmaceutical companies have raced to find treatments and vaccines.  The updated treatment protocols meant that death rates from the virus have gone down since the early days of the outbreak.  The surge in vaccine research has so far yielded what appears to be 3 viable solutions, two of which may be available as early as late December.  Further, there are still several other credible solutions that are scheduled to yield results in the upcoming quarter.  Those have also yielded encouraging results in early trials.  So, it is safe to say that we may be seeing the light at the end of the tunnel from the virus treatment perspective. The problem however, is that today, we are still in the midst of the pandemic.  The US is unarguably experiencing a second wave, with positivity numbers rising to uncomfortable levels.  This has caused many state and local authorities to impose directed restrictions. Those restrictions, while necessary for health reasons, continue to cause economic hardships to vital small businesses.  I say “vital” because small businesses provide roughly half of US private-sector employment and account for roughly 44% of GDP.  Those vital companies, still very much struggling, are in need of continued support until they can once again stand on their own feet when the economy can reopen in earnest.  With regards to employment, it is important to note that employment growth lags behind economic growth.  At the onset of the Great Recession, unemployment was at 5% and peaked at 10% just after the recession ended.  Most importantly, the unemployment rate did not return to its pre-recession level until September of 2015, more than 6 years after the recession ended!  While the circumstances of the current recession are very different than prior recessions, it is clear that some companies, former employers, may not make it through the current crisis, and the ones that do will be strained as a result of increased debt burden and lost revenues, so employment may not bounce back as fast as we would like.  Those employees, who are currently out of work need support until they can return to their former jobs or seek new ones.  The bottom line here is that further fiscal stimulus is critical to bridge the economy until it can truly recover.  Yesterday’s moves on the floor of the Senate indicate that lawmakers have begun to reengage in discussions on another stimulus package: good news.  President-elect Biden has ratcheted up his calls for Congress to act, indicating that he will advocate a larger, more aggressive approach, once in power: also good news.  However, as this next phase of discussions plays out, it is important to recognize that it is not necessarily the overall size of the package that is critical, but rather its timing and how it is delivered.

 

THE MARKETS

 

Stocks jumped yesterday as news of renewed stimulus discussions boosted investor sentiment.  The S&P500 climbed by +1.13%, the Dow Jones Industrial Average advanced by +0.63%, the Russell 2000 Index rose by +0.89%, and the Nasdaq Composite Index added +1.28%.  Bonds slipped and 10-year treasury yields added +9 basis points to 0.92%.  This rise in longer maturity yields was welcomed by the banking sector, which rose by +1.95%.

 

NXT UP

 

– ADP Employment Change (Nov) is expected to show that +430k new private sector jobs were created, an increase over last month’s +365k.

– The Fed Beige Book will be released this afternoon and will give us insight on the economic conditions across the various Fed banking regions.

– The DOE Crude Oil Inventories (Nov 27) is expected to show a further -1.9 million barrel drawdown after last week’s -754k pullback.

– Chairman Powell will be on the Hill again today and New York Fed President John Williams will speak.

– After the bell earnings include Zscaler, Crowdstrike, Okta, Snowflake, Splunk, Synopsis, Five Below, and PVH Corp.

 

 

daily chartbook 2020-12-02