The Market Today
J&J Reports Compelling Vaccine Results; U.S. Incomes Boosted by More Stimulus
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
J&J Vaccine Prevents 100% of Deaths, According to Study: Johnson & Johnson announced the results of its vaccine study, including the headline that it prevented 72% of COVID-19 cases in its U.S. trial. While the headline appears disappointing, the details make it much more compelling. In the results of the 44,000-person global study, the vaccine prevented 85% of severe infections and 100% of hospitalizations and deaths, the most acute risks societally. Moreover, the vaccine reportedly requires only one dose, can be stored at normal refrigeration temperatures, and lasts three months. J&J will reportedly file for an emergency use authorization quickly.
New Home Sales Post First Gain in Five Months; Remain Above Pre-Pandemic Levels but Below Torrid Summer Pace: New home sales recovered 1.6% in December, less than the 3.5% gain expected, after sliding 12.6% in November, larger than the 11.0% drop initially estimated. The small improvement to close out 2020 represented the first gain in five months. As a result of the prior string of declines, the 842k-unit annualized sales pace represented the second-weakest reading since June. Still, sales were up more than 15% from the prior year. Sales in the Midwest and West both recovered after sharp November drops while activity in the South and Northeast cooled again. On a three-month average basis, the median price was up 6.7% from a year ago to a record $355.9k. However, inventory pressures eased again as months’ supply rose to 4.3, matching the highest since May.
Democrats Keep Pressure on for More Aid: President Biden’s top economic adviser said that the risk of inaction on providing the economy with more aid is too high and that piecemeal stimulus isn’t the answer. Democratic Senator Wyden agreed, saying splitting up stimulus would reduce the likelihood of passing a second bill, adding he expects his party will pull out all the stops to get a deal done soon. Senate Majority Leader Schumer said the Senate will start considering a relief bill next week.
South African Variant Identified in South Carolina, Less Impacted by Novavax Vaccine: Well it was bound to happen and Thursday it did, the U.S. found its first known case of the South African variant. The CDC said it was aware of the case, which was not related to travel, and was working with authorities to gain more information. A top White House adviser on the pandemic said the virus variants require close monitoring. In separate news, Novavax said its vaccine was 89% effective against COVID-19, more than 85% effective at blocking the U.K. variant, but only showed 50% efficacy from a trial in South Africa, where the most concerning mutant strain originated.
The Bulls Were Back in Town: U.S. stocks recovered Thursday following the worst day for the major indices since late October. Amid myriad daily headlines, the Dow and S&P 500 jumped 1.0% after declines of 2.1% and 2.6%, respectively. The Nasdaq underperformed, gaining 0.5% following a 2.6% drop. The economy grew less than expected in the fourth quarter, but also contracted less severely for all of 2020 than initially feared. Total jobless claims remained volatile because of reporting noise in emergency programs, but new claims, while still elevated from November levels, declined more than expected. Occupying an equal share of the headlines, wild swings in some of the most heavily shorted names continued. A Senate panel will reportedly call a hearing on the state of the stock market and several retail brokerages announced they were limiting trading in the names. As a result, shares of GameStop and AMC slumped 44.3% and 56.6% after gains of 135% and 301% on Wednesday. After shooting higher following the morning’s economic releases, the Treasury curve closed higher and steeper. Despite a record auction of 7-year notes stopping through, the 10-year yield finished up 2.9 bps at 1.05%, near its high mark for the day.
Personal Income Boosted by Stimulus: Personal income beat expectations in December, rising 0.6% MoM, even after taking into account a weaker November than initially reported (rev. from -1.1% to -1.3%). Once again, its gains in income appear to be the outworking of fiscal stimulus efforts. Proprietors income, through which the PPP funds to small businesses flowed, fell another $78B as the program benefits continued to fade. This should rebound in future months after additional funds were approved in December’s stimulus. Also positive, employment income rose $60B, bringing it back above its pre-virus peak. The biggest driver of the monthly gain in overall income, however, was an $85B jump in transfer payments, the nascent evidence of increased unemployment insurance (+$40B) and the distribution of direct payments (+$35B).
But Spending Slows: Despite the gains in income, personal spending fell 0.2% in December and November’s tally was revised from -0.4% to -0.7%. The decline appears to be the result of renewed restrictions on certain activities. The consumer ended the year on a weaker spending note, but there is a silver lining. The cumulative gain in savings for the year versus expected savings levels rose to $1.65T, adding even more powder for consumers in the future.
PCE Inflation: PCE inflation was firmer than expected in December, rising 0.4% at the headline level and 0.3% at the core level. The increases brought the YoY rates up to 1.3% and 1.5% (respectively). There remains little evidence of sustained consumer inflation pressure in the official data.
Pending Home Sales, Consumer Confidence, Fedspeak: Pending home sales are expected to decline 0.5% in December (9:00 a.m. CT). The final University of Michigan report on consumer confidence in January will be released at 9:00 a.m. Dallas Fed Bank President Kaplan and San Francisco’s Daly are both scheduled to make public comments today.