The Market Today
Congress Agrees on Stimulus Package but Fears Rise on U.K. Situation
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Stimulus and Government Funding Packages: Investors will also be watching for Congress to sign the $900 billion COVID-19 relief bill and the $1.4 trillion government funding package today.
Chicago Fed Index Lower than Expected: The Chicago Fed National Activity Index dropped from 1.01 to 0.27, weaker than the expected decline. As an aggregation of 85 different economic reports, the CFNAI does not provide new insight into the pace of growth. It only provides a different lens through which one can view the data.
Congress Agrees on the Stimulus Package but Loses Investors’ Attention: Congress finally reached a stimulus agreement Sunday that both sides could agree on, and yet stock futures and Treasury yields are sharply lower ahead of U.S trading. The $900 billion stimulus package will extend federal eviction moratoriums and key emergency unemployment programs into March, provide a $300 federal supplement to regular state-level benefits, send means-adjusted ($75k individual, $150k married) checks directly to taxpayers ($600 per adult and child under 16), provide $325 billion for small businesses primarily through the PPP program, and offer money for several other purposes such as schools, vaccine distribution, rental assistance, and airlines. A one-day stop gap funding bill was passed late Sunday to avoid a government shutdown and give Congress Monday to vote the plan into law, and still global markets have moved sharply into de-risking mode overnight.
Growing Concern about U.K. Strain Leads to Travel Bans for Island Residents: In addition to the positive vaccine news in recent weeks and continued progress toward the stimulus agreement, there began to be official reports last week of a new strain of the virus in the U.K. Some medical officials have said the particular strain appears to be more infectious than the original but that it remains unclear whether it is more dangerous. However, the concern has been great enough that many countries across Europe and elsewhere have banned travelers from the U.K. With much of Europe already under modified lockdowns and many countries extending restrictions through the holidays, the latest developments aggravated worries about the negative economic effects. Europe’s Stoxx 600 tumbled on its opening tick and was trading down nearly 2.5% at 7 a.m. CT. Although the declines were less severe, U.S. equity futures slumped alongside the European indices to send contracts on the S&P 500 down 1.8%. In addition to driving oil prices down more than 4% and firming up a flailing U.S. dollar, the daily anxieties had pulled the 10-year Treasury yield down 4.8 bps at 7:15 a.m. back below 0.90%.
ICYMI – December 18, 2020 Weekly Market Recap: U.S. equities set records on Thursday and Treasury yields edged higher last week as the battle between near-term economic worries resulting from a raging virus and optimism about more stimulus relief and the start of vaccinations in the U.S. rolled on. The trendline for U.S. cases, hospitalizations, and deaths remained worrisome and government officials continued to caution against traveling for the holidays or attending festive gatherings of size. From an economic perspective, data reflected housing’s resiliency and a sustained manufacturing recovery while signaling a persistent slowing of the broader recovery. Most concerning, retail sales disappointed in November and initial jobless claims posted back-to-back increases to start December, reaching their highest level in 14 weeks. Fed Chair Powell admitted the next several months will be challenging for the economy but officials’ updated projections reflected expectations for a quicker recovery than previously expected. From a policy perspective, asset purchases were not altered as some had expected with officials opting to instead keep purchases steady at $120 billion per month until “substantial further progress” had been made toward their goals. Powell also applauded past fiscal support efforts and sounded encouraged by current negotiations in Congress for more. A bipartisan relief package evolved throughout the week into a roughly $900 billion plan which eventually included more direct checks to Americans but continued to push aside state and local aid and business protections. The negotiations appeared to progress each day before stalling Friday, leaving the matter unresolved by the time markets closed. For the week, the S&P 500 gained 1.3% while the 10-year yield rose 5.0 bps to 0.95%. Click here to view the full recap.