Investment Commentary –December 8th, 2020

Year to Date Market Indices as of December 8th, 2020

• Dow 30,173 (5.73%)
• S&P 3,702 (14.59%)
• NASDAQ 12,582 (40.24%)
• Gold $1,863 (22.64%)
• OIL $46.10 (-24.77%)
• Barclay Bond Aggregate (4.81%)
• Fed Funds Rate 0-0.25 (0-0.25)

 

Stocks Rise, Bonds Dip Amid Hope for Stimulus Deal: Markets Wrap
Global stocks approached another record high as hopes for a U.S. stimulus deal countered fears about resurgent coronavirus cases. Benchmark Treasuries and the dollar slipped for the first time this week.

Health-care and banking shares led gains in Europe, after equities rose across much the Asia Pacific. Britain’s pound surged before U.K. Prime Minister Boris Johnson’s face-to-face meeting with European Commission President Ursula von der Leyen to save Brexit trade negotiations later on Wednesday.

Global equities were energized by the White House’s surprise re-entry into pandemic-relief talks with a $916 billion proposal that opened a potential new path to a year-end deal. S&P 500 futures edged up. Nasdaq 100 contracts slipped following the gauge’s 10th straight gain.

The opportunities are “in equities and credit, so we are overweight, we are risk on,” Richard Lacaille, global chief investment officer at State Street Global Advisors, said on Bloomberg TV. “We know that we will be tested again next year in terms of Covid and elsewhere.”

With little time left before the year-end holiday break and no let-up in Covid-19 cases in some of the biggest economies, investors are clinging to prospects for an 11th-hour stimulus deal and more progress on vaccine roll-outs. Emergency-use authorization for Pizer Inc.’s shot in the biggest economy may come as early as Thursday.

 

U.S. Elections Appear to Have Been Market-Friendly (T. Rowe Price Market Analyst)
Divided government likely would produce moderate policies.

*Initial market reactions to the U.S. elections have been favorable, but the potential remains for near-term volatility.

*If Republicans keep control of the Senate after two runoff elections in Georgia, divided government could impede the Biden administration’s legislative agenda.

*GOP Senate control almost certainly would rule out any significant tax increases. The Biden presidency is likely to focus more on regulation and foreign policy.

After an initial period of uncertainty, recent steps by the Trump administration to cooperate in the transition seem to guarantee the inauguration of Joe Biden as president on January 20, 2021.

Two runoff elections in Georgia on January 5 will determine the balance of power in the Senate. Currently, a continuation of divided government appears most likely, with Democrats having narrowly retained control of the House.

Election and Policy Issues
With Congress entering the “lame duck” period before President-elect Biden’s inauguration, markets will focus on the prospect for additional fiscal relief. Negotiations on such a package broke down shortly before the election.

Katie Deal, the Equity Division’s Washington analyst, sees only a “slim chance” of significant fiscal legislation before the end of 2020, with negotiations beginning in earnest for a 2021 stimulus package. Given the slim majority either party may hold in the upcoming Senate, Democrats will struggle to match their previous USD 2.2 trillion package, which failed to move beyond the House.
Divided government likely will dominate the fiscal picture in 2021—assuming Republicans hold at least one of two Georgia Senate seats headed for runoff elections. “In a GOP Senate, a proposed tax rate increase of any magnitude would be dead on arrival,” Linehan predicts.

In a divided government, the fiscal debate eventually could return to the question of what to do about exploding federal deficits, suggests Mark Vaselkiv, CIO, Fixed Income. For now, however, both parties appear to recognize the need to support the economic recovery. Failure to pass additional fiscal stimulus early next year could increase the risk of a double-dip recession, Vaselkiv warns.

Historically, U.S. equity market performance has been relatively consistent across presidents from both parties, Linehan notes, suggesting a long-term perspective is most appropriate. The potential costs of shifting in and out of asset classes in response to shorter-term political events can be steep, Vaselkiv notes.

John Linehan, CIO Trowe Price Equity: “I think eyes will remain more on the response to COVID than on politics,”

“It’s easy to get consumed by elections,” Linehan says. “But we think having a balanced approach to investing, and being thoughtful and careful, could be critical to long-term investment success.”

Around the Web
Extended run: The major U.S. stock indexes pushed their record levels higher, extending the mostly positive momentum they’ve seen since the start of November despite the rise in coronavirus cases. Weekly gains totaled 1% to 2%, slightly below the previous week’s increases.

Mixed jobs report: The pace of the U.S. labor market’s partial recovery from the spring’s COVID-19 economic shock is slowing. Employers added just 245,000 jobs in November—around half of what economists had expected, marking the fifth straight month of slowing growth. While unemployment fell to 6.7%, that was due in part to fewer people looking for work.

Mixed jobs report: The pace of the U.S. labor market’s partial recovery from the spring’s COVID-19 economic shock is slowing. Employers added just 245,000 jobs in November—around half of what economists had expected, marking the fifth straight month of slowing growth. While unemployment fell to 6.7%, that was due in part to fewer people looking for work.

 

THIS DAY IN FINANCIAL HISTORY
1941: As the U.S. declares war on Japan, the S&P 500 nosedives, losing 3.23% and bringing its loss since Pearl Harbor to 7.5%.

Upcoming Events
*Thursday brings the European Central Bank policy decision and a press briefing from Christine Lagarde. Economists widely expect the central bank to increase and extend its pandemic bond-buying program.
*The FDA meets to discuss the vaccine made by Pfizer/BioNTech on Thursday.
*Jobless claims data are due in the U.S. on Thursday

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.

Securities Offered Through Client One Securities, LLC Member FINRA/SIPC and an Investment Advisor. Advisory Services Offered Through Client One Securities, LLC and ChangePath, LLC.
Affinity Asset Management, LLC, ChangePath, LLC and Client One Securities, LLC are separate entities.

https://www.bloomberg.com/news/articles/2020-12-08/asia-stocks-to-gain-as-s-p-500-hits-another-record-markets-wrap?srnd=markets-vp
https://www.troweprice.com/financial-intermediary/us/en/insights/articles/2020/q4/us-elections-appear-to-have-been-market-friendly.html
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