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What you need to know about the market in about 5 minutes - Dec 07, 2020
Mr. Market just turned on active noise cancellation and put the music on blast. Continuing to celebrate the developing vaccine and stimulus news while choosing to ignore relevant economic data.
Vaccine approved in the UK, US soon to follow!
Holy sh** a real stimulus?
The economic week ahead
What's going on?
Yeah, sure, successful vaccine news is great, but have you ever had your vaccine authorized for emergency-use?
US: The Food and Drug Administration (FDA) will vote on Thursday regarding emergency-use authorization for the Pfizer vaccine. If approved, distribution could happen as early as Friday and 20 million people could be vaccinated before the new year! The Moderna vaccine is expected to be approved next week.
China: Has placed orders for experimental, domestically made vaccines.
Russia: Started giving shots of the Sputnik V vaccine to willing recipients this weekend despite the vaccine not having yet cleared studies needed to ensure effectiveness and safety (Cold War PTSD much?).
But what does it mean?
The pandemic has wreaked havoc on the global economy and safety measures have created challenges for businesses leading to a slowdown in economic activity. As the focus shifts to logistics, expect headlines to switch from new cases to distribution-based stats. COVID is still far from done driving the media’s agenda. While there are still questions regarding delivery, experts expect the vaccine to be widely available in the US by the Spring of 2021. In an unprecedented move, the Trump Administration is moving on possibly its most impactful COVID response initiative yet by coordinating with the Biden team to ensure a smooth transition of the deployment of Operation Warp Speed.
It’s always darkest before dawn
Last week’s employment report: added 245.000 jobs (vs. expected 460.000, and 610.000 in October), driving unemployment down to 6.7%. This was the slowest job’s growth in six months. 22 million jobs were lost between March and April of which 12mm+ were recovered, leaving 10mm+ Americans still considered unemployed (compared to the 5.8mm in February).
The Fed’s Beige Book: reported that one third of the Fed’s 12 districts experienced little to no growth in recent weeks, suggesting economic activity slowed down in early November as COVID cases surged.
Stimulus package update: A bipartisan $908Bn COVID aid plan gained momentum in Congress (about time...see I’m feeling pretty good). There is still a lot of work ahead before any bill gets signed off, but an agreement could be reached as early as today!
But what does it mean?
The dim employment report and discouraging data has served to confirm the feeble state of the economy. As expected, the retail and hospitality sectors were hit the hardest by stay-in-place lockdowns and will continue to face challenges through the holidays as COVID cases continue to hit record highs. Furthermore, 13 million people are due to lose unemployment benefits on Dec. 26th if Congress doesn’t act quickly. Despite the positive vaccine news, things may get worse before they get better.
Restrictions may remain in place until a critical mass of the population is inoculated which could take months. In the meantime, jobless claims may rise prompting the need to extend unemployment benefits and a new stimulus package. With the employment data as a catalyst, the COVID relief package represents a major compromise for both parties. To add some drama to the story, Congress faces a Dec. 11 deadline to pass a new federal budget or risk a shutdown. Let’s hope Congressional leaders multi-task better than the rest of us...
Up next on, the economy:
Monday: US Consumer credit change, Chinese trade balance figures, Japanese economic index and GDP releases
Tuesday: Eurozone GDP for Q3 and economic sentiment figures are released
Wednesday: CPI figures for China and the Eurozone; Canada releases interest rate decisions
Friday: US Consumer Sentiment Index, European Council meeting
Ongoing through the week:
TLDR, look at these:
ECB’s announcement on interest rates, fiscal stimulus news and eurozone CPI figures will provide depth into the state of Europe’s economy and the game plan for the coming months.
Stay vigilant of US CPI, jobless claims report and Consumer Sentiment index releases. They will provide analysts with strong indicators of how effective monetary policy is, how confident consumers feel heading into the holiday season and confirmation on the slowdown in job generation.
What’s an investor to do?
Being a cynic is easy, so dare to be an optimist - Mr. Market
Mr. Market continues to celebrate the developing vaccine news and hope for a stimulus package despite a dismal employment report and lockdowns which may spill over into Q1 2021. Investors wonder how long Mr. Market can keep the party going before he sobers up and faces the stark economic reality.
Expect a lot of noise regarding vaccine deployment plans and speculation surrounding pharma companies. For the passive investor, the unprecedented high valuations may present a great opportunity to evaluate your biggest winners and cash in on some profits. For more active investors, continue monitoring the vaccine and stimulus news which may drive momentum up a bit longer.
For the curious investor:
Marijuana legislation was passed and YUM Brand’s (owner of: Taco Bell, KFC and Pizza Hut) shares rose, because that makes sense. Jokes aside, an upcoming Senate runoff could shift the balance towards cannabis-friendly reform. Though highly speculative, check out IIPR, YOLO and Robinhood darling, GRWG.
Black Friday figures showed lackluster figures for many brick and mortar stores while e-commerce companies (e.g., JD, ETSY, MELI) were the clear winners in a growing online shopping trend that is unlikely to revert.
IPOs this week: Airbnb (NYSE: ABNB) and DoorDash (NYSE: DASH) are expected to go public!
DASH has thrived during the stay-at-home year with revenues tripling in the first 9 months while narrowing down its losses. DASH is expected to price 33mm shares between $90-95, after raising guidance from the initial $75-85 range suggesting heightened investor demand, and valuing the company at $27Bn+!
ABNB has had a different experience as demand has deteriorated on reduced travel and hospitality services. Regardless, the company is hoping to raise $2.5Bn and they may be off to a slow start due to the pandemic and provide a good time to open a position.
Remember to check out our guide on investing in IPOs before diving in.
If you didn’t know, now you know
Cuba’s arresting artists spreading pro-democracy messages. On November 9th, rapper Denis Solis refused to allow a police officer to enter his home without a warrant and filmed the incident. The government arrested and sentenced Solis to 8 months in prison for the crime of “disrespect.” The San Isidro Movement (a collective of anti-communist artists using art, poetry and music to protest the totalitarian government’s restrictions) organized a protest. In a rare instance, they met with the Ministry of Culture who said they’d take it up with the Minister, Alpidio Alonso. Alonso called the internal effort a US ploy and launched a state-televised propaganda campaign to slander Solis. US Secretary of State, Mike Pompeo, has demanded Solis’ release as protests continue and artists continue to be surveilled, harassed and oppressed in Cuba. Follow the movement’s hashtag on Twitter.
This summary only covers the surface of the conflict. To read more, click here.
What we’re reading
How to Reassess Your Chess by Jeremy Silman. So you can beat your friend who claims to be a 1400 rated chess player.
How to Grow the F*** Up: A Guide to Humans by Mark Manson. For those of us still trying to figure out how “adulting” works.
Don’t keep all this goodness to yourself. Share WTM with one friend who needs to read this today! 😁
- Max & Thomas
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