When the economy says "I'm fine"
What you need to know in 5 minutes - Dec 21, 2020
Mr. Market isn’t one for reality this year. As gloomy economic data continues to pile up, Mr. Market keeps on dancing to all-time highs. Fortunately, Congress looks like it’s going through its end of the year to-do list and checking it twice! The stage is set for 2021.
The not so good news - the economy is hurting
The goods news - Congress pulled a rabbit out of the hat
Up next on, the economy
What the Market will be on break for the holiday next week. We’ll be back in the New Year on Monday, January 4th 2021! Thank you for supporting us throughout the year as we got started. We’ll be bringing even more financial education and investing tips in 2021!
What's going on?
There’s no easy way to say this...
Jobless claims rose for a second week reaching 885,000 Americans; underscoring the strained labor market in the context of still rising COVID cases. More quarantine restrictions have begun globally, and business activity is dampening across the Nation.
Retail sales fell 1.1% in November, the biggest drop since May, and larger than Wall Street expected.
The Fed, as expected, announced it will not move its short-term interest rates insisting that the economy will need ongoing support over the coming years as Americans slowly re-engage in pre-pandemic activities.
But what does it mean?
The bad news is economic activity is slowing down. As we mentioned last week, the consecutive increases in jobless claims has confirmed that momentum in the labor market has stalled out. With less people in the labor force there is less disposable income available to spend; evident by the weak start to the holiday shopping season. Sadly it doesn’t look like everyone will be getting a turbo man doll this year. Economists expect retail sales to continue falling in December as virus cases spike and restrictions intensify.
It’s a Congressional Miracle! We have a stimulus!
Lawmakers finalized a $900 billion stimulus package and 1.4 trillion Government spending bill! The package represents the 2nd largest economic relief measure in American history after the Cares Act.
The Electoral College confirmed Joe Biden as the next President of the United States.
The FDA approved the Moderna vaccine for Emergency Use. The US has agreed to purchase 200 million doses.
But what does it mean?
Well what do you know? Congress actually passed a stimulus package before Guns N’ Roses released a new album! I guess better late than never flies at the Capitol? Just as 13+ million Americans were set to lose their unemployment benefits, lawmakers struck a deal that will provide Americans in need with disposable income and measures that will help small businesses stay afloat a little longer.
Heading into the New Year, the US now has:
A confirmed President-Elect
A stimulus package
A government budget plan to keep the Federal Government in operation
2 approved vaccines, the US expects to vaccinate 100 million by April with the addition of the Moderna vaccine
If that wasn’t enough, the New York Jets got their first win of the season at 1-13 (still a better record than Trump’s lawsuits)! Suffice to say, it’s starting to feel a lot like Christmas. Pending the stimulus will be sufficient to stop the current bleeding, the foundations are set for recovery in 2021.
Up next on, the economy!
Monday: Chinese interest rate decision, European Consumer Confidence and the Chicago Fed’s National Activity Index
Tuesday: Australian retail sales, US Redbook Index and Richmond Fed’s Manufacturing Index.
Wednesday: US Consumer sentiment index, durable goods orders, jobless claims report, personal income and spending reports, and Personal Consumption Expenditure - Price Index
TLDR, look at these:
Eyes on Wednesday’s reports! A plethora of consumption data will be released providing insight into consumer behavior (sentiment and spending data). In addition to the jobless claims report, the consumer data will provide insight into the fragility of the coming holiday season.
The Redbook, National Activity and Manufacturing indices will provide a wider perspective on the long-term directionality of the economy. Great information to pair with consumer data, or a cheese plate with some classy bagged Franzia?
What’s an investor to do?
A little party never killed nobody! So we gon' dance until we drop, drop. Who knew Mr. Market was such a big Fergie fan? Vaccine rollouts and approvals, a stimulus and government budget has Mr. Market inviting folks back for another party. Eventually, we will have to drop though. Investors should be wary of all time highs in the market as fundamental data indicates a frail economy. Even the mainstream media is wondering about a potentially overdue market correction. The famous Buffett Indicator (comparing total market capitalization to GDP) is approaching record highs signaling a grossly overvalued stock market.
Investors should be careful about opening new positions, particularly in growth stocks. Consider taking some profits or building positions a few shares at a time so as to not overexpose in case a correction is coming. Look into undervalued sectors for value plays in reopening sectors and potentially the Dogs of the Dow?
This week is expected to be a discreet one for Mr. Market, who will be winding down after a LONG and volatile year. The stock market will close early on Thursday at 1PM and close all day on Friday.
For the curious investor:
Investors are hopeful 2020 will close out with the seasonal phenomenon known as the Santa Claus Rally. In 38 of the last 50 years, the stock market has gained an average of 1.3% during the last five trading days of the year and the first two days of the new year!
African economies are expected to outperform global growth in 2021, and the African Continental Free Trade Area (AfCFTA) will kick off Jan 1st! The AfCFTA was created to implement trade facilitation measures by cutting red tape and simplifying customs procedures in the continent. Many are hopeful it will echo the best aspects of the European Union. Consider investing in the continent via:
As Bitcoin surges to all-time highs, cryptocurrency brokerage and wallet, Coinbase has filed a draft registration with the SEC en route to an eventual Initial Public Offering (IPO). Coinbase claims to have 35+ million users from 100+ countries, with $25 billion in assets and $320 Bn in volume traded. Perhaps that’s enough to silence the doubters?
Mr. Market isn’t the only one getting high. Two cannabis giants are mixing strains, Aphira and Tilray, have agreed to join forces in light of recent marijuana legislation in the US. The merger will result in the world’s largest marjuana production and distribution company with a market cap just shy of $4bn.
If you’re holding onto shares of GOOG, keep an eye on the new antitrust lawsuit filed by 40 states, and the EU’s new regulation proposal on big tech. Speaking of Google, the EU has approved its acquisition of FitBit for USD 2.1 Bn. Braise for some turbulence. Who’s keeping an eye on who now Google?
If you didn’t know, now you know
President Trump’s administration has banned cotton imports from one of China’s largest producers (XPCC). The quasi-military organization has been accused of forcing slave labor upon detained Uighur Muslims. The Chinese detention camps imprisoning Uighur Muslims may be the largest mass incarceration of a religious group since the Holocaust. Click here for information on how to get involved
This summary only covers the surface of the conflict. To read more, click here.
What we’re vibing:
On Becoming a Leader by Warren Bennis. A must read for those looking to become effective leaders.
What we do in the Shadows - FX TV series a vampire comedy/horror mockumentary. For those who have watched the 2014 movie, or love uncomfortable comedy, this is a must watch.
Good News Everyone!
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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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.