Stimulus Deal Nears | Daily Market Update

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Monday, December 21, 2020

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Stocks Open Lower

The S&P 500 Index opened roughly 1.5% lower, while the tech-focused NASDAQ fared better. Stocks are responding to more curbs to contain the spread of COVID-19 and bucking a tailwind created as Congress nears agreement on a $900 billion stimulus bill. European stocks are down roughly 3% as lockdowns in London take hold. Asian stocks fared better, with the Shanghai Composite leading.

Daily Insights

Stimulus helps bridge to economic recovery. Congress will vote today on a roughly $900 billion stimulus package that will help shore up the economy until spring and give the medical community more time to tackle the latest wave of COVID-19.

  • The fifth stimulus package since the pandemic began will help limit the economic damage from ongoing restrictions and ease the pressure on the healthcare system.
  • The package includes expanded unemployment benefits, direct payments to individuals and families, funding for contact tracing and vaccine deployment, rental housing assistance, and aid for small businesses, schools and colleges, live entertainment venues, and airlines.

Fed gives banks green light. On Friday, the Federal Reserve (Fed) cleared big banks to pay out dividends and buybacks.

  • Payouts remain capped by profit levels and are unlikely to return to pre-pandemic levels for some time.
  • The bull case for banks rests in part on their ability to ramp up payouts that had been curbed by the Fed’s regulatory response to the 2008–09 financial crisis.
  • Increased shareholder payouts bode well for financials in 2021, but we remain cautious on the group overall due to a still-challenging interest rate environment.

Week ahead. The economic calendar for the holiday-shortened week includes:

  • Tuesday: Final Q3 2020 gross domestic product (GDP), consumer confidence (Dec.), existing home sales (Nov.), and the Richmond Fed Index (Dec.)
  • Wednesday: Michigan Sentiment (Dec.), new home sales (Nov.), and personal consumption expenditures and personal income (Nov.)
  • Thursday: Durable goods orders (Nov.) and weekly initial unemployment claims (week ending Dec. 19)

Technical update. The S&P 500 Index is selling off in early trading, and we would reiterate that substantial technical support can be found in the range of 3550–3600. Oil prices are also down more than 3%, but WTI crude oil has support near $44 per barrel.

COVID-19 news. There were 189,000 new COVID-19 cases reported in the United States Sunday (source: Johns Hopkins) as the 7-day average of new daily cases begins to flatten, particularly when excluding California.

  • Intensive care units across Southern California are at 100% capacity, with new cases in the state 53% higher versus the previous Sunday.
  • The Moderna vaccine candidate was approved for use Friday, and first vaccinations are scheduled to begin today.
  • Concerns over the variant coronavirus strain in Great Britain are rising as London enters full lockdown.

 

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