The Market Today
Vaccines and Variants; Re-Openings and More Restrictions
by Craig Dismuke, Dudley Carter
Home Prices, Consumer Confidence, and Tech Earnings: FHFA and S&P CoreLogic will both release their November home price reports this morning at 8:00 a.m. CT. Prices are expected to continue higher after turning up sharply mid-year. Record-low mortgage rates, low levels of inventories, and positive income dynamics have helped drive activity. At 9:00 a.m., the Conference Board will give its first look at consumer confidence for 2021. Confidence is expected to recover a little of its losses from December. Also at 9:00 a.m., the Richmond Fed will release its regional report on manufacturing activity. Finally, Microsoft will report earnings after the bell today, beginning a heavy period of tech earnings. Also reporting will be Starbucks and AMD.
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Monitoring the Vaccine Headlines: While the likelihood that more stimulus could be pushed off until March drove the sharpest intraday market move Monday, concerns about the virus variants and vaccines set a shaky underlying backdrop for global trading. Merck announced overnight it was calling off development of its vaccine candidate following lackluster results in early trials. Moderna said its vaccine appears to be effective against the two main virus variants, but also noted that its shot loses some potency against the South African strain. The company said it will study the possibility of providing a booster shot for the variant and could have a separate and specific shot for the strain available by the summer. Dr. Fauci, a top U.S. health official, said the existing vaccines appear to work against the current variants at the moment, but noted the risk that they may not be effective against future variants. He also commended the U.S. rejoining the WHO and said the institution needs some reforms but will be critical in fighting future pandemics. He also said it is “awful” that the world still, more than a year later, does not understand the origins of the virus. On the corporate front, Delta said it is planning to recall roughly 400 pilots based on some cautious optimism that vaccine rollouts will stoke some demand for travel.
Monitoring the Virus Headlines: France’s economy and finance minister said Monday the 6% growth target for 2021 will be a “challenge” that becomes even more difficult to achieve if the country moves back under a lockdown. Finland’s prime minister said the country needs to tighten down on restrictions while the U.K. said it’s beginning to see some early signs that its lockdown is starting to have its positive effect on the virus trends. Ireland’s Health Ministry said it is seeing “rapid improvement” in its epidemic. In the U.S., New York Governor Cuomo said the state’s outbreak has improved after a post-holiday spike, with a transmission rate now below 1.0. On the other side of the country, California’s governor lifted stay-at-home orders across the state following improvements in hospitalizations and testing positivity rates.
Stocks Were Volatile, 10-Year Treasury Yield Hit 3-Week Low as Investors Feared they Might Have to Wait to Mid-March for More Aid: U.S. equities were volatile on Monday and Treasury yields marched steadily lower from their initial decline overnight during early European trading. After ending last week at a record, tech stocks had strengthened further overnight despite persistent weakness in economically sensitive sectors. At their peak, which occurred just ahead of U.S. trading, Nasdaq futures had gained as much 1.4%. However, despite positive opens, the Nasdaq and S&P 500 came crashing down into negative territory a few minutes before 10 a.m. CT. Around that time, Senate Majority Leader Schumer provided a timeline for more stimulus that appeared to disappoint investor expectations. “We’ll try to get that passed in the next month, month and a half,” Schumer said, referencing the Biden administration’s proposal for more aid. That timeline, which seemed to spark the sell-off in equities, lines up with the expiration of key unemployment support and other measures included in the latest $900 billion aid package that passed in late December. After the shaky morning session faded into afternoon calm, a late-day climb pushed the S&P 500 0.4% for the day, near its best level of the session. The movements among sectors, however, reflected the day’s caution. Utilities, consumer staples, and tech closed in the top three spots while energy, financials, and industrials all sank to the bottom. Treasury yields trended more consistently throughout the day, extending an overnight drop all the way through to the close of the U.S. session. The 10-year yield, after adding 1.5 bps during Asian trading to hit 1.10%, ended the day down 5.6 bps at 1.03%, the lowest level since January 5.
Global Stocks Diverge After Volatile U.S. Trading Monday as Treasury Yields Inch Up Off Three-Week Lows: Asian equities slumped Tuesday while European stocks recovered following back-to-back declines, keeping an index tracking world equities essentially flat on the day. U.S. equity futures were mixed and little changed after a notably volatile start to the week. Contracts on the S&P 500 and Nasdaq were hovering on both sides of breakeven while Dow futures inched up 0.2% after declining Monday. Investors were disappointed yesterday by Democratic Senate Majority Leader Schumer’s statement that any additional stimulus may not be decided on until March. Former Fed Chairwoman Janet Yellen, who was confirmed yesterday by the Senate to become the next U.S. Treasury Secretary, called on Congress in her confirmation hearings to “act big.” Corporate earnings season continues to play a major role in daily market movements around the globe and will be a focus during the U.S. session, with several major names set to report their latest results on Tuesday. After falling to multi-week lows amid Monday’s volatile equity markets, sovereign yields have inched higher ahead of U.S. trading. Germany’s 10-year yield was up 1.1 bps at 7:20 a.m. CT to -0.54%. The U.S. 10-year Treasury yield had risen 1.7 bps to 1.05%. Both securities closed Monday at their lowest levels since January 5.
Dallas Fed Manufacturing Signals Some Current and Expected Weakness, Despite Signs Broader Economic Activity Could Pick-Up: The Dallas Fed’s Manufacturing Index weakened unexpectedly in January as key details on production, new orders, and employment all softened somewhat from December. The headline index, expected to rise from 9.7 to 12.0, declined instead to 7.0, a third consecutive decline to its lowest level since -1.9 in July. The six-months-ahead outlook also showed expectations for some weakness in production and employment, which declined gradually from December. However, expectations for general economic activity did improve, hitting a high back to 2018.