The Market Today
Stocks Hit Record Highs as Record Year Comes to Close
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Monitoring the Virus Headlines: It was a light day for virus headlines Monday, leaving the focus on the new round of economic aid that will soon be sent out into a slowing U.S. economic recovery. After markets closed, the House passed a bill to increase the size of the stimulus checks to be sent out to Americans by $1,400, from $600 to $2,000. The bill must still find support in the Republican-held Senate, where conservative lawmakers are likely to be more hesitant to add significantly to the $900 billion price tag of the new stimulus package. California’s governor said the state’s full current allotments of the Pfizer-BioNTech and Moderna vaccines should be received by the end of this week. Reports also indicated that the lockdown for the southern part of the state could be extended. More broadly, investors will wait for updated virus statistics later in the week to see if the drop in cases in recent days reflected an improvement in the outbreak or the expected lull from lower testing before a spike after the holiday break.
Home Prices and Senate Decisions: The only economic report on the calendar today is the October home price report from S&P CoreLogic. Prices are expected to continue their recent run, rising another 1.0% in October. All eyes will also be on the Senate where a bill increasing direct stimulus checks from $600 to $2,000 will land when their session resumes today. The proposal was not popular with Republicans in the House and will require 60 votes to pass the Senate. Also on the Senate’s plate, deciding on joining the House in overriding the President’s veto of the National Defense Authorization Act.
Stocks Hit Records after President Trump Reluctantly Signed Off on “Disgraceful” Bipartisan Aid Bill: Stocks’ early gains stuck around until Monday’s close after President Trump signed the $2.4 trillion consolidated spending bill that funds the government through September 2021 and includes roughly $900 billion in new emergency aid. His decision to sign the legislation late Sunday, which prevented a government shutdown at midnight Monday and removes the risk of a fiscal cliff for millions of unemployed Americans at year-end, came after his strong public dissent to the size of the economic payments to Americans and line items in the broader spending bill he believed were a wasteful use of resources. U.S. equity futures had risen overnight alongside indices in Asia and Europe, an early prediction of the strength that ultimately lifted the S&P 500 0.9% and to a new record close. The Dow and Nasdaq both gained 0.7%, also reaching new all-time highs. Treasury yields had climbed overnight with equity futures, sending the 10-year yield as high as 0.96% just prior to the beginning of U.S. trading. However, the benchmark yield drifted back throughout the day, finishing flat near the daily lows at 0.92%. After markets closed, the House voted in favor of raising the economic impact payments from $600 to $2,000, sending the bill to the Republican-held Senate where the probability of successful passage is less clear.
Global Stocks Rise as U.S. Stimulus and Brexit Remove Some Risks from Early 2021 Outlook: Foreign equities are stronger Tuesday following yesterday’s records on Wall Street and futures are pointing to the major U.S. indices resetting those all-time highs at the opening bell. Equities rose 1.0% across Asia and Europe’s Stoxx was 0.9% higher prior to the start of U.S. trading. The latest jolt to optimism came from the successful passage of additional emergency stimulus in the U.S and a post-Brexit trade deal between the EU and U.K. While additional stimulus for the U.S. economy is now on its way, investors will be watching to see if the Republican-led Senate agrees to increase direct payments to Americans from $600 to $2,000 after the House voted to do so Monday evening. Japan’s Nikkei 225 led all gains with a 2.7% jump and provided the latest reminder of how powerful rescue efforts from policy makers, both fiscal and monetary, have been. The index hit its highest level since 1990 despite the dire health effects and devastating economic consequences caused by the pandemic. The U.K.’s FTSE 100 was up by more than 2% and leading all gains across Europe in its first trading day since the agreement was struck on Christmas Eve. Ambassadors from the remaining 27 EU countries voted to approve the trade agreement for implementation on January 1. At 7:40 a.m. CT, U.S. equity futures were firmer by around 0.4% and Treasury yields had edged higher, with the 10-year yield climbing 1.7 bps to 0.94%.
Dallas Fed Manufacturing Index Dips in December but Many Key Components Improve: While the Dallas Fed’s headline manufacturing index signaled some weakness in December, many of the details firmed up from November. The headline index fell from 12.0 to 9.7, slightly worse than the 11.6 economists had expected. However, current production rose solidly to match its best level since 2018, new orders and shipments both recovered to hit their second strongest levels in more than two years, and employment jumped to its highest level since October 2018. Looking ahead six months, new order expectations cooled but the outlook for production, shipments, and employment all gained. Manufacturing has been one of the more resilient sectors amid the current virus surge that has slowed activity elsewhere, including in the important services sectors.