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Week in Review: December 18, 2020

Recap & Commentary

Markets ended the week higher as investors refocused on the proverbial light at the end of the tunnel with respect to the coronavirus pandemic. The gains occurred even as the current surge in new coronavirus cases showed no signs of abating, a new more virulent strain of coronavirus emerged in the UK, and Congress seemingly continued to find new ways to snatch defeat from the jaws of victory with respect to passing additional stimulus.

After months of on-again, off-again negotiations, and some last minute disagreements over certain Federal Reserve programs, Congress finally reached a deal on additional stimulus on Sunday. Among other measures, the $900B aid package will provide $325B to businesses, including an infusion of $284B for the Paycheck Protection Program (PPP), direct payments of $600 to individuals making less than $75K/year, $300/week of additional unemployment benefits until mid-March, as well as funding for vaccine distribution, food aid, airlines, farmers, and schools.  The bill also extends the federal moratorium on evictions by one month until the end of January.

U.S. daily coronavirus cases and deaths set new records of 249K and 3,600, respectively, during the week. As expected, the FDA approved Moderna’s vaccine for emergency use, which will make millions of additional doses of vaccine available in the coming months. In an effort to instill confidence in the vaccine and encourage people to take it, VP Mike Pence, the Surgeon General, and other high ranking politicians had their vaccines administered on TV. In the UK, officials announced the emergence of a new strain of the virus that appears to be 70% more transmissible. Thus far, there is no evidence that it is more deadly than the current strain, or resistant to recently developed vaccines.

Economic Bullet Points

A busy week for economic data was highlighted by a larger than expected decline in retail sales, along with housing data, and multiple readings on the manufacturing sector.

November retail sales fell 1.1% from October, well below the expected 0.3% decline. Core retail sales which exclude purchase of auto and gas, fell 0.9% during the month, confirming the weakness in the headline figure. The decline was likely the result of surging coronavirus cases and uncertainty over the timing and extent of additional fiscal stimulus.

Housing remained a bright spot as housing starts rose 1.2% in November to an annualized pace of 1.55M, the highest level since February. Compared to a year ago, starts rose 12.8%.

Regional and national manufacturing data pointed to slowing conditions, impacted by the recent surge in coronavirus cases.

Weekly jobless claims rose to 885K, the highest level since early September. As recently as early November, claims had reached a post-March/April low of 711K.

Of Note

The Federal Reserve released the results of its latest bank stress test, which found that the nation’s largest banks have “strong capital levels”. As a result, the Fed will allow banks to once again conduct share buybacks, something that it prevented during 2020, in response to the coronavirus pandemic.

Market Indices Week of 12/18

S&P 5001.3%
Small Caps3.0%
Intl. Developed2.0%
Intl. Emerging0.9%
Commodities3.3%
U.S. Bond Market0.0%
10-Year Treas. Yield0.95%
US Dollar-1.1%
WTI Oil ($/bl)$49
Gold ($/oz)$1,886

The Week Ahead

  • Existing Home Sales
  • New Home Sales
  • PCE Inflation
  • Weekly Jobless Claims
  • Personal Income & Spending
  • Consumer Sentiment
  • Durable Goods Orders

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