Discover more from What the Market?
Stay calm, and carry on
What you need to know this week in 5:11 minutes - Nov 23, 2020
Mr. Market is having a case of Deja Vu. COVID is on the rise, lockdowns are back and the government can’t agree on what to do. Mr. Market is feeling cautiously optimistic and doing his best to not let circumstances get him down. It's the beginning of the holiday season and Mr. Market is thankful for the good vaccine news and the upcoming boost from holiday shopping. There won’t be a lot of economic news heading into the holiday week, but there are still a number of upcoming opportunities to explore.
COVID’s back, and it brought lockdowns with it
To stimulus or not to stimulus?
Why can’t we be friends? Said the Fed to the Treasury
What's going on?
Well, it’s Groundhog day...again.
As the second wave rips through the US, coronavirus cases are surging to record numbers, leading numerous states to enact restrictions that will likely impact the economic recovery. Let’s break it down:
Jobless claims came in last week at 742,000, the highest since June. Despite a steady recovery of jobs, jobless claims are still roughly 3x higher than pre-pandemic levels.
States are imposing curfews, lockdowns and business restrictions heading into the winter months to flatten the curve and prevent hospital systems from being overwhelmed.
But what does it mean?
It feels like Deja Vu doesn’t it? We’ve been here before. Lockdowns and restrictions will help flatten the curve but they’ll negatively impact the economy. Restrictions could freeze or undo hiring efforts, and consumer confidence and sentiment will be tested.
With a vaccine on the way, the conversation shifts to damage control; cases avoided now could be permanently avoided. The economic spiral will be limited to the time needed to effectively distribute a vaccine. Although results are promising, we’re still a long way away from safe and adequate distribution.
If Rihanna can find love in a hopeless place, perhaps we can find hope in a COVID-place? Those in charge have exponentially more data, resources, and experience in handling a second wave than they did back in March.
While volatility is expected, it may be avoided if consumer sentiment stays positive along the road to vaccine deployment. The coming actions by the government (*cough* stimulus *cough*) will dictate how badly the new COVID wave hits the economy and how fast we will be able to recover once it's over.
So about the stimulus…
If “con” is the opposite of “pro,” then did they call it Congress because it’s the antonym to progress? If we only had the stimulus package to judge, it would seem so. Since the election, little progress has been made regarding a new COVID relief bill. On Thursday, Democrats and Republicans finally agreed to restart stimulus talks. Although both sides of the aisle claimed to be pushing for a package to be passed before the end of the year, it looks like the stalemate may continue until after the Georgia runoff races in January.
But what does it mean?
While politicians fight amongst themselves, the American people have to wait for new assistance. Congress has the power to soften the blow of a second COVID wave, once a stimulus bill is passed the Treasury Department will be able to issue payments within weeks and help keep the economic machine churning.
Why are you the way that you are?
In a continued demonstration of superb communication and alignment, the Treasury Department announced it was not extending the Federal Reserve’s emergency-lending program that will expire at the end of the year. The Federal Reserve delivered somewhat unprecedented commentary by criticizing the Treasury’s move and stated that “people will lose confidence in efforts to control the pandemic.”
The Treasury’s decision comes as a surprise as the Fed had recently commented it was willing to use these programs for as long as needed. Adding insult to injury, the Treasury also ordered the Fed to return roughly $429 billion in unused funds for Congress to reallocate as it sees fit.
But what does it mean?
The Fed needs the Treasury’s signoff to extend stimulus programs. Given the current pandemic context, Mr. Market would feel much more at ease if the emergency programs established to backstop the strained economy remained in place. It’s troubling to see the Treasury and the Fed disagreeing at a time when their collaboration is most needed. Many analysts have speculated that the move was motivated by the Trump Administration to delay the incoming Biden Administration from restarting new Fed programs.
What’s an investor to do?
Mr. Market is bracing for a second economic pandemic blow. Normally, Mr. Market would be pretty blue right now, but he’s holding on to optimism that a vaccine will help control the spread, and a second stimulus package will lessen the impact on the economy. Encouraged by the vaccine news, re-opening stocks (e.g., airlines, banks, energy, hospitality) led the way last week to new all-time market highs. Overall, Mr. Market is feeling cautiously optimistic for the end of the year, where retail (e.g., TGT, WSM, WMT) and marketplace (e.g., SHOP, AMZN) companies hope for a strong digital showing heading into the holiday season.
Expect volatility as consumer confidence and sentiment is tested. Close attention should be placed on the unequal distribution and impact of recovery measures. Re-opening businesses that may still be reeling from the first COVID wave in the energy, hospitality, travel and non-essential sectors may be facing their make or break moment.
This week in economic data:
Monday: Manufacturing PMI data from Europe and the US
Tuesday: US Home price index, Bank of Japan’s Governor speech, German Q3 GDP data
Wednesday: US jobless claims report, FOMC’s minutes and revised GDP data
Thursday: US stock market holiday, ECB’s monetary policy meeting
Friday: US stock market closes at 1PM, European consumer confidence and business climate data
Be attentive to this week’s jobless claims report, FOMC minutes and GDP data on Wednesday, and the ECB’s monetary policy meeting commentary on Thursday.
For the curious investor:
In a year riddled with uncertainty, an ongoing pandemic, and political turmoil around the globe, tech companies have had a superlative year. The tech sector has been instrumental in driving the economic recovery and have silenced the doubters of the relevance of tech in traditional industries.
Multiple consumer facing tech companies have filed for an initial public offering (IPO) in the US before the end of the year. Among them:
Vacation rental online marketplace AirBnB,
Meal delivery service, DoorDash,
Video game platform Roblox,
E-commerce platform Wish,
Payments startup Affirm,
Enterprise AI software provider, C3.ai.
IPOs tend to be highly volatile as early (pre-IPO) investors cash out and new investors pile in en-masse. IPOs can present both a strong long-term growth investment as well as short-term trading opportunities while the company finds a stable price. Before jumping into any IPO, be sure to check out our tips on investing in IPOs.
For a summary of what these companies do and their performance, click here.
If you didn’t know, now you know
Despite Peru having one the world’s highest deaths per capita due to COVID-19, their omniscient, unicameral legislature decided that it was obviously the perfect time to impeach President Martin Vizcarra. Vizcarra ran on an anti-graft platform (ixnay corruption!) against an opposition congress. In the process of enacting new anti-corruption laws, the corruption plagued government voted him out. Oh the people were pissed! Over 3M Peruvians took to the streets to protest the legislature. Now, Peru has Francisco Sagasti, who voted against the impeachment, serving as the interim President (the 4th President in 5 years). Sagasti has until the elections in July to bring some stability to the country and get the Pandemic under control. No small feat for any President.
What we’re reading
Some good news everyone!
Don’t keep all this goodness to yourself. Share WTM with one friend who needs to read this today! 😁
Thanks for reading! We hope everyone has a happy and safe Thanksgiving break!
- Max & Thomas
Looking for more?
This writing is for informational purposes only and the author/s undertake/s no obligation to update this article even if the opinions expressed change. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services in any jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. The author/s expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.