The markets seemed to hail what it perceived to be a stalemate in Washington, D.C. in November following the Election. One would think that the sweep achieved by the Democrats after the GA runoff elections would cause the market to pause. Instead, what seems to be happening is that the market is focused on additional stimulus.
On the economic front, other than Payrolls, the data was positive overall last week. The December manufacturing data (Markit PMI & ISM) exceeded expectations and out-paced the November data. Factory Orders for November were higher and Redbook retail sales showed strong year-over-year growth. We will get the December Retail Sales figures this week to see how 2020 holiday sales compared to 2019. The Consumer also showed resolve in 2020 as the final FICO Credit Scores improved year-over-year and Consumer Credit showed that consumers are making smarter purchases with non-revolving debt (typically, larger ticket items) and fewer purchases with revolving debt (credit cards). ADP private payrolls disappointed with 123,000 job losses and Total Payrolls showed losses of 140,000. This is not uncommon, as Payrolls went backwards on 6 different occasions following the 2008 Financial Crisis. However, the Unemployment Rate remained stable at 6.7%. Meanwhile, the National Financial Conditions Index showed stability.
The virus continues to cause disruptions. Cases are back up to pre-Christmas levels after subsiding during the last week of 2020. A new study by the La Jolla Institute for Immunology in California suggests those infected with COVID will have immunity for some time, possibly years, after being infected. So far, more than 8 million doses of the vaccines have been administered in the U.S. In fact, the U.S. is second only to China among global vaccinations for COVID. As the vaccine rollout continues, cases & deaths should begin to decline sometime during the first half of 2021.
The outlook for 2021 seems bright at the moment. Analysts are more optimistic about corporate earnings than at any time since 2010. However, Fiscal Policy is likely to include a higher corporate tax rate, which could dampen earnings somewhat. The market seems focused on stimulus, which may rule the day over the next few weeks until we get a clearer picture of what the new Congress and President propose for Fiscal Policy.
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