The Weekly Wrap December 18th 2020

by | Dec 21, 2020 | Weekly Wrap | 0 comments

 

Stocks slipped from record highs in volatile trading on Friday as lawmakers struggled to bridge differences on additional coronavirus stimulus measures. The Dow Jones Industrial Average fell about 124.32 points, or 0.4%, to 30,179.05. At its session low, the 30-stock benchmark shed more than 270 points. The S&P 500 dipped 0.4%, or 13.07 points, to 3,709.41, while the Nasdaq Composite lost 0.1%, or 9.11 points, to 12,755.64. All three indexes touched new intraday highs earlier in the day after closing at records in the previous session. Leaders on Capitol Hill said they are close to an agreement that would provide $900 billion in additional aid. The talks, which have stretched on for months, are up against the wire, with federal funding lapsing at 12:01 a.m. ET on Saturday. 2

       Economy, Geopolitics and Commodities

  1. The U.S. blew past records for daily new Covid-19 cases and virus deaths on Wednesday, as the national crisis continues to worsen. More than 247,000 new infections and more than 3,600 Covid deaths were reported on Wednesday, according to Johns Hopkins University data, the highest single-day tallies yet. A record 113,000 people are currently hospitalized with the virus, according to The Atlantic’s COVID Tracking Project. The new and disheartening highs come at the same time the U.S. is beginning a vaccine rollout. 2
  2. The first Covid-19 shots have been given to more than 1 million people in four countries, according to data collected by Bloomberg. It’s the start of the biggest vaccination campaign in history and one of the largest logistical challenges ever undertaken. Vaccinations in the U.S. began this week with health-care workers, and 24 states reported the first 49,567 doses administered. Those numbers are expected to surge in the coming days as more states work through their early allocations of shots and begin to report their numbers. These are the first of an initial distribution of 5.9 million doses of Pfizer Inc. and BioNTech SE’s vaccine. 3
  3. The Federal Reserve dialed up its economic expectations slightly for the end of this year as well as for 2021, according to the central bank’s Summary of Economic Projections released on Wednesday. The central bank now expects the real gross domestic product to fall just 2.4% in 2020, compared to a decline of 3.7% predicted in September. The Fed also upped its 2021 real GDP forecast to 4.2% from 4.0% expected previously. The Jerome Powell-led Fed estimates the unemployment rate to fall to 6.7% this year, further below the 7.6% previously predicted. The unemployment rate should fall to 5.0% in 2021, compared to the central bank’s previous estimate of 5.5%. The Federal Open Market Committee said in its statement Wednesday that it would continue to buy at least $120 billion of bonds each month “until substantialfurther progress has been made toward the Committee’s maximum employment and price stability goals.” 2
  4. Retail sales fell more than expected in November, likely weighed down by raging new Covid-19 infections and decreasing household income, adding to growing signs of a slowdown in the economy’s recovery from the pandemic recession. The second straight monthly decline in retail sales reported by the Commerce Department on Wednesday could nudge Congress to agree on another fiscal stimulus package. News of the weak start to the holiday shopping season came as Federal Reserve officials were wrapping up a two-day policy meeting. Retail sales dropped 1.1% last month, with receipts declining almost across the board. Data for October was revised down to show sales slipping 0.1% instead of rising 0.3% as previously reported, adding a sting to the report. October’s dip was the first since April when stringent measures to control the first wave of coronavirus cases crippled the economy. 10
  5. Goldman Sachs CEO David Solomon told CNBC on Tuesday that small businesses it surveyed are in dire need of another round of emergency Paycheck Protection Program funding. “They have needs; 90% of them have exhausted their PPP funding at this point,” Solomon told Becky Quick in a “Squawk Box” interview. “More than half of them have had to lay off employees and really constrain their businesses.” Solomon’s comments come as lawmakers are taking negotiations to approve another coronavirus stimulus bill down to the wire. Most versions of bills being discussed include fresh funding for the government’s small business relief loan program, part of the $2.2 trillion CARES Act passed in late March, as well as enhanced unemployment benefits. 2
  6. Mortgage rates set yet another record low last week — the 15th this year and the second record in as many weeks. The drop, however, did not spark any significant change in weekly mortgage applications, but demand is substantially stronger than it was a year ago. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) decreased to 2.85% from 2.90%, with points decreasing to 0.33 from 0.35 (including the origination fee) for loans with a 20% down payment. Applications to refinance a home loan, which are most sensitive to mortgage rate fluctuations, increased 1% for the week but were a strong 105% higher than the same week one year ago. Last year at this time, mortgage rates were 113 basis points higher. Refinancing now would give anyone who refinanced last year substantial savings on their monthly payments. 2
  7. Jobless claims unexpectedly rose last week as states reimposed coronavirus restrictions as lawmakers struggle to push through new government aid, according to a Labor Department report Thursday. The number of first-time unemployment-benefits filers totaled 885,000 in the week ending Dec. 12, the most since the week of Sept. 5. Economists polled by Dow Jones expected initial claims to fall to 808,000. In all, 20.6 million Americans were receiving some kind of unemployment benefits through Nov. 28, the report said. These numbers “really highlight the fragility of the labor market, particularly now as the second resurgence of the coronavirus [is] leading to further business closures and additional job losses, ” Lindsey Piegza, chief economist at Stifel, told CNBC’s “Squawk Box.” 2
  8. Import prices rebounded less than expected in November as an increase in the cost of petroleum products was offset by cheaper food and motor vehicles, supporting views that inflation could remain moderate amid a resurgence in new Covid-19 infections and rising unemployment. Import prices have remained weak even as the dollar has depreciated about 7.4% versus the currencies of the United States’ main trade partners since April. 2
  9. European markets closed lower on Friday as British and European leaders struck a pessimistic tone about the prospect of a post-Brexit trade deal. The pan-European Stoxx 600 provisionally closed 0.33% lower, with sectors pointing in opposite directions. Retail shares slid the most, losing 1.8%, while telecoms were up over 0.2%.  European Union Chief Negotiator Michel Barnier warned Friday that time was running out for an agreement to be reached on a new trading arrangement after Britain leaves the EU’s orbit on December 31. On the data front, U.K. consumer confidence made its sharpest climb in eight years in December, with a survey released Friday from market research firm GfK jumping to -26 from -33 in November, as the rollout of the first Covid-19 vaccine program in the country lifted sentiment. 2
  10. Treasury yields were little changed on Friday as leaders on Capitol Hill scrambled to put the finishing touches on a U.S. stimulus deal. The yield on the benchmark 10-year Treasury note was flat at 0.926%, while the yield on the 30-year Treasury bond also held steady at 1.671%. Yields move inversely to prices. Meanwhile, the U.S. dollar rose just over 0.2% against a basket of currencies to trade at 90.001 on Friday, marginally above a more than two-year low. 2
  11. Oil hit a nine-month high on Friday and was headed for a seventh straight weekly gain as investors focused on the rollout of COVID-19 vaccines and looked past rising coronavirus cases across the world. Brent crude was 56 cents, or 1.1%, higher at $52.06, its highest since March. U.S. West Texas Intermediate (WTI) crude was up 64 cents at $49.00 after touching $49.18, its highest since February. Oil gained support this week from weekly U.S. supply data showing crude inventories fell by 3.1 million barrels, more than expected. 4
  12. Gold prices retreated on Friday from a one-month peak scaled in the previous session, as the dollar bounced back from lows, while investors pinned hopes on a U.S. fiscal stimulus deal. Spot gold edged lower by 0.1% to $1,884.71 per ounce. U.S. gold futures fell 0.1% to $1,887.70 per ounce. What you’re seeing in terms of the gold markets today is a little bit of dollar strength after a very poor week for the U.S. dollar and a very good week for gold,” said Michael Hewson, chief market analyst at CMC Markets UK. 2

       Financial Markets

  1. Electric vehicle maker Tesla (NASDAQ:TSLA) is poised to enter the S&P 500 in what will be the largest rebalancing in the history of that index. The new index with Tesla in it begins trading on Monday, but all the trading action happens at the close on Friday. S&P estimates that approximately 129.9 million shares of Tesla will need to be purchased to add to the S&P 500. At the current market price of $655, indexers would need to buy $85.2 billion in Tesla stock at the close on Friday. However, there are billions more that will need to be bought by “closet indexers” that do not officially pay S&P but nonetheless track the index. No one knows how much these “closet indexers” will buy, but it could be 50%-100% above the “official” $85.2 billion estimates. 2
  2. Intel (NASDAQ:INTC) dropped as much as 6% on Friday afternoon following a Bloomberg reportthat Microsoft plans to design its own chips for its Surface PCs as well as servers. Intel has famously had a long-running partnership with Microsoft as the primary processor maker for Windows PCs. The report comes a month after Apple started selling PCs using its own M1 processor, instead of Intel chips. The chips are reportedly based on technology from ARM, which Nvidia is in the process of acquiring from Softbank. Apple’s chips and Amazon’s planned server chips are also based on ARM’s instruction set. 2
  3. Winnebago Industries(NYSE:WGO)— The recreational vehicle maker’s stock popped 8% following a big earnings beat. Winnebago earned an adjusted $1.69 per share for its fiscal first quarter, well above the consensus estimate of 98 cents, according to Refinitiv. Revenue also came in above estimates. The company cited strong demand and interest in outdoor activities into the new year. 2
  4. Tilray (NASDAQ:TLRY) and Aphria (Toronto: APHA.TO), the Canadian cannabis companies will combine in an all-stock deal that will create the world’s biggest cannabis producer. Aphria shareholders will hold 62% of the combined company, with the company paying a 23% premium over Tilray’s Tuesday closing price. Tilray shares surged 30%, while Aphria shares jumped more than 8% in the premarket. 2
  5. Virgin Galactic’s(NYSE:SPCE) stock fell in trading on Monday after the space tourism company cut short its latest spaceflight test mid-launch on Saturday due to an engine ignition issue. “The flight did not reach space as we had been planning. After being released from its mothership, the spaceship’s onboard computer that monitors the rocket motor lost connection. As designed, this triggered a fail-safe scenario that intentionally halted the ignition of the rocket motor. Following this occurrence, our pilots flew back to Spaceport America and landed gracefully as usual,” Virgin Galactic CEO Michael Colglazier said in a statement. The company expects to repeat the spaceflight attempt from its operating base at Spaceport America in New Mexico. Colglazier said that Virgin Galactic is evaluating the data from the test and did not indicate when it expects to be ready to launch again, with the company saying it has several rocket engines “ready” onsite and will “check the vehicle and be back to flight soon.” 2
  6. Massachusetts regulators filed a complaint against Robinhood on Wednesday, accusing the popular trading app of failing to act in the best interests of its users. The complaint cites Robinhood’s “aggressive tactics to attract inexperienced investors, its use of gamification strategies to manipulate customers, and its failure to prevent frequent outages and disruptions on its trading platform.” “We disagree with the allegations in the complaint by the Massachusetts Securities Division and intend to defend the company vigorously,” a Robinhood spokesman said in a statement to CNBC. “Over the past several months, we’ve worked diligently to ensure our systems scale and are available when people need them. We’ve also made significant improvements to our options offering, adding safeguards and enhanced educational materials.” 2

Sources:

  1. Wall Street Journal
  2. CNBC
  3. Bloomberg.com
  4. Reuters
  5. Seeking Alpha
  6. The Guardian
  7. AP Newswire
  8. MarketWatch
  9. Good News Network
  10. Chicago Tribune

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly. Economic forecasts set forth may not develop as predicted. The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not ensure against market risk. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond and bond mutual fund values and yields will decline as interest rates rise and bonds are subject to availability and change in price. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market. Investing in foreign and emerging market securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. This research material has been prepared by Legacy Foundation, LLC.

Disclosure: Investment Advice offered through Private Advisor Group, LLC, a Registered Investment Advisor.

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