Equity markets are set to resume their upward trajectory following a stall last week, as vaccine optimism outweighs concern over global economic growth. Pro-cyclical sectors continue to lead, including energy, industrials, materials and financials. This follows a strong month-to-date surge that drove the S&P 500® Index up 10%, led by small caps up 16% and developed international markets up 14%. Risk and sentiment metrics have leveled off and, in some cases, deteriorated in the past week despite strong equity markets.
Treasury yields fell last week on a flight-to-quality following news that Treasury Secretary Mnuchin declined to extend the Fed’s credit, municipal lending and Main Street Lending programs, noting they have “clearly achieved their objective,” requesting the return of $455 billion in unused funds for Congress to re-appropriate for other stimulus measures. Credit spreads, particularly commercial paper spreads, widened, while the dollar fell to a two-and-a-half year low.
Investors are encouraged by fresh vaccine news, with AstraZeneca the latest to release phase three trial data showing 90% efficacy when trial participants received a half dose, followed by a full dose at least one month apart1. Though it is modestly less effective than the offerings from Pfizer and Moderna, it is lower cost and capable of being stored in a refrigerator versus a freezer. There is also a possibility that it prevents infection, not just disease. A spokesman for the White House said there will be enough vaccine doses to immunize about 20 million Americans during December, beginning with healthcare and frontline workers and the elderly. Also, Regeneron announced their treatment program used by President Trump received emergency use authorization (EUA) from the FDA, reducing medical visits by patients with mild to moderate cases.
Advisors to President-elect Biden are pushing for a quick deal with Senate Republicans for the fifth coronavirus relief bill. While the deal may fall short of the targeted $2+ trillion, the team is also considering a range of other options that can be quickly issued under executive action, including moratoriums on evictions and foreclosures and deferrals of student loan payments. Additionally, they are looking to reverse the Trump administration’s recent move to shift the Fed’s emergency credit programs to fiscal stimulus from monetary stimulus.
The rebound in cases is resulting in changes to consumer behavior and renewed shutdown procedures by government officials, raising worries about a global double-dip recession. The eurozone flash PMI hit a six-month low in November at 45.1, led by a collapse in services and indicating the economy is in contraction. In the U.S., retail sales missed expectations, while online sales jumped 29.1%, suggesting the momentum in the consumer economy has stalled. The Index of Leading Indicators was in line with expectations and continues to show improvement, though high-frequency data suggests moderation in activity. Wall Street strategists are beginning to predict first-quarter GDP will decline following growth in the fourth quarter because of the Covid surge.
What to Watch
Economic data is plentiful in a holiday-shortened week, with PMI data on Monday, consumer confidence on Tuesday and revised third-quarter GDP, consumer sentiment, durable goods and the PCE deflator on Wednesday.
Sources and Disclaimers
Press Release: AZD1222 vaccine met primary efficacy endpoint in preventing COVID-19, Nov. 23, 2020
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