The Market Today
Jobless Claims Drop to End Historic 2020
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Monitoring the Virus Headlines: Away from the stimulus headlines, which signaled the Senate will not quickly pass a bill to raise the size of the stimulus checks to individuals from $600 to $2,000, most of the news related to vaccines. While an official with Operation Warp Speed acknowledged the rollout of the vaccines has progressed slower than was hoped for, officials from the CDC lauded the fact that more than 2.6 million Americans had been inoculated. The CDC also said it expects the pace of new vaccines being administered to increase quickly beginning next week and believes the shots will still be effective against the new U.K. strain. After reporting the first known U.S. case yesterday, Colorado’s governor reported the state now has 24 additional suspicious cases. California also announced it had identified a case of the new variant. New York’s governor said the mutated strain hadn’t yet been found in the state, but discouragingly reported a new daily record increase in cases. The U.K. continues to struggle with its fast-spreading outbreak, leading government officials to place 78% of England in Tier 4 restrictions and the remaining areas in Tier 3. On a more upbeat note, the U.K. government announced that rollout of the Oxford-AstraZeneca vaccine will begin on Monday after the shot received approval earlier in the day.
Jobless Claims Post Surprise Improvement to Close Out Dreadful 2020: An historic year for the global economy comes to a fitting close on Thursday, with the sole focus in the daily economic data on the health of the U.S. labor market. Last week’s initial jobless claims of 787k is markedly higher than the 220k level from the beginning of the year. However, it marked the lowest reading of December and represents an unexpected 19k decline from the prior week, an encouraging second weekly drop after several weeks of disappointing increases. Continuing jobless claims also bested expectations for a slight increase to 5.37mm with a drop to 5.22mm, a new low for the pandemic. While a positive development, holiday weeks are generally caveated as potentially being prone to unusual swings. Away from the regular state programs, new PUA claims also declined and more lagged data covering emergency PUA and PEUC programs improved. The net result showed a nearly 800k decline in total unemployment insurance claims for the week of December 12, from 20.4mm to 19.6mm. The labor market will remain a key focus in 2021. The persistently high level of unemployment shows the strides left for the economy to fully heal and highlights the importance of extended emergency unemployment assistance in the latest stimulus package.
Stocks Trimmed Gains and Yields Declined as Uncertainty around Additional Stimulus Continued: U.S. equities ended higher Wednesday but gave back most of their early-session gains gradually throughout the day. The S&P 500 opened up 0.5% but slowly descended to lock in a marginal 0.1% gain. Treasury yields trekked a similar trendline to close lower on the day, with the 2-year yield dropping 0.4 bps to 0.12% while the 10-year yield dipped 1.3 bps to 0.92%. With a sparsely populated economic calendar to close out 2020, investors remained watchful for developments on the virus front and any news about progress on additional stimulus. The bill that would increase the total payments to individuals from $600 to $2,000 remained stuck in the Senate. Majority Leader McConnell said the Senate would not be “bullied” into increasing the size of the payments stipulated in the stimulus bill that became law on Monday. He also said the stand-alone bill “has no realistic path” to a quick approval in the Senate, and instead could potentially be lumped together in a bill that also addresses Section 230 protections for certain internet companies as well as election security. Despite the continued uncertainty that dragged stocks off their highs, the Dow’s 0.2% gain was enough to notch a new record close.
Quiet Close to Crazy Year: Global markets have moved in different directions overnight as 2020 takes its final step into the history books. China’s indices posted solid gains of nearly 2% while many national markets were closed for a holiday. China’s official PMIs tracking larger companies cooled in December – manufacturing fell from 52.1 to 51.9 while services slipped from 56.4 to 55.7 – but still indicated the country’s recovery has continued. Europe’s Stoxx 600 closed early and 0.4% lower, wrapping up a dour year on a sour note. Before this morning’s jobless claims report, U.S. equity futures and Treasury yields were essentially unchanged on the day.
Historic Year for Financial Markets and the Economy: The slow news flow overnight leaves a little extra ink for a look at how key markets fared during an historic year that saw medical, monetary, and governments take unprecedented steps in response to the virus pandemic. The MSCI Asia Pacific Index rose 17% for the year after tumbling nearly 29% in March. The Stoxx Europe 600 ended down more than 4% after staging a partial recovery from its more than 32% plunge. Through Wednesday, the Dow was up 6.6% for the year, the S&P 500 had rallied 15.5%, and the Nasdaq has staged an eye-popping 43% surge. U.S. WTI declined more than 21%, from above $61 per barrel to below $48, while gold surged 25%. The Dollar fell 7% to a two-and-a-half year low. The Fed cut interest rates by 1.50%, the 2-year yield careened 144 bps from 1.57% to 0.12%, the 5-year yield fell 132 bps from 1.69% to 0.37%, and the 10-year yield dropped 99 bps from 1.92% to 0.93%.
Pending Home Sales Slip for Third Month but Remain Notably Stronger than Before the Pandemic: Pending home sales were expected to be flat in November but declined 2.6% instead, a third month of slowing activity after a surge of transactions over the summer as the economy reopened from lockdowns. The West region led all declines with a 4.7% drop, new contract signings slipped roughly 3% in the Northeast and Midwest, and activity in the South slowed 1.1%. And while the monthly drop signals some further cooling in existing home sales, there continued to be positive indicators of healthy demand for housing. On a non-seasonally adjusted basis, sales were up 16% from a year ago and the National Association of Realtors said weak demand was not to blame for the recent slowing. The group’s chief economist said, “The latest monthly decline is largely due to the shortage of inventory and fast-rising home prices. The market is incredibly swift this winter with the listed homes going under contract on average at less than a month due to a backlog of buyers wanting to take advantage of record-low mortgage rates.”