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Are Investors Expecting Too Much from This Market?

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What’s in Today’s Report:

  • Are Investors Expecting Too Much from This Market?

Futures are modestly lower following a generally quiet night as Biden’s stimulus plan met market expectations.

President Elect Biden’s $1.9 trillion stimulus plan is being met by a “sell the news” reaction as markets already priced in most of what was included, while easy passage of the bill is not guaranteed (this could still take months to become law).

Economically, UK Industrial Production missed estimates, while EU Exports were in line with expectations but neither number is moving markets.

Today focus will be on economic data, as we get the first data point from January via the  Empire State Manufacturing Index (E: 6.0) and markets will want to see stability in the data to imply that the recovery isn’t losing too much momentum. Other notable reports include Retail Sales (E: -0.1%), Industrial Production (E: 0.5%) and PPI (E: 0.4%).  There’s also one Fed speaker, Kashkari at 11:30 a.m. ET, but he shouldn’t move markets.

Finally, earnings season begins today with results from JPM (E: $2.72), WFC (E: $0.59) and C (E: $1.35).

Why 2021 Could Start With a Bang (In Stock and Bond Markets)

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What’s in Today’s Report:

  • Why 2021 Could Start With a Bang (In Stock and Bond Markets)

Futures are slightly higher following a generally quiet night of news.

Economically, the only notable report was the Chinese December Manufacturing PMI, which declined from November but slightly beat estimates at 51.9 vs. (E) 51.5.

On the stimulus front, despite the recent drama of the last few days, the payouts to people in the stimulus bill will not be increased to $2000.  However, if Democrats win the Senate, expect this issue to come up again in early 2021.

Today focus will be on Jobless Claims (E: 830K) and markets will want to see continued improvement in that weekly data to imply the economic recovery has not lost meaningful momentum.  Outside of that and some year-end positioning, today should be a generally quiet day (although markets will get busy again starting next week).

Another Positive for Banks

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What’s in Today’s Report:

  • Another Positive for Financials
  • Nasdaq Hits Fresh Record (Chart)

Futures declined overnight after President Trump threatened to veto the recently passed stimulus bill but markets have since stabilized as hopes for fiscal aid remain strong and investors look ahead to a slew of economic data today.

Late Tuesday, Trump said he hoped Congress would increase the amount of direct payments to individual American from $600 to $2,000 and remove unnecessary spending in the package however the bill is still likely to become law given the overwhelming Congressional support which is easing market angst this morning.

Today, there is a long list of economic data due to be released including Durable Goods Orders (E: 0.6%), Jobless Claims (E: 875K), Core PCE Price Index (E: 1.5%), New Home Sales (E: 989K), and Consumer Sentiment (E:81.0).

If the data is better than expected, that could help lift equity markets after several days of heavy trading while the impact of disappointing data will be limited given the optimism of the new aid package in the works.

Beyond the data, investors will be continuing to watch coronavirus statistics and lockdown measures as the latest surge in cases and hospitalizations remains a risk to the economic recovery and any negative developments could weigh on risk assets in thinning holiday trade.

Dollar Outlook (This Matters to Stocks)

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What’s in Today’s Report:

  • Dollar Outlook (This Matters to Stocks)

Futures are little changed following a quiet night as markets digest the week’s rally.

Economic data beat estimates overnight, as UK Retail Sales fell less than expected (-3.8% vs. (E) -4.2%) while German Ifo Business Expectations also beat estimates (92.8 vs. 91.8).

Stimulus talks continued, and while a deal isn’t likely today (a mild disappointment), one is still expected in the next few days.

Today we get one notable economic report, Leading Indicators (E: 0.4%) and two Fed speakers, Evans (11:00 a.m. ET), Brainard (11:10 a.m. ET).  But, none of that should move markets.

Instead, markets will be on “stimulus watch” and right now the expectation is for a $900 billion-ish stimulus deal to be approved in the next few days (definitely before Christmas).  Anything that confirms that expectation will help stocks rally today, and anything that implies it might not happen will cause a stock decline. Finally, today is Quadruple Witching options expiration so expect some big volumes and potential volatility into the close.

December Economic Breaker Panel (Stronger Than Expected)

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What’s in Today’s Report:

  • Economic Breaker Panel
  • Why Stocks Dropped on Wednesday
  • EIA and Oil Analysis

Futures are slightly higher following Wednesday’s tech-driven declines as markets wait for the ECB decision and more clarity on stimulus and Brexit trade negotiations.

Economic data was sparse overnight, as the only notable report was UK Industrial Production which beat estimates (1.3% vs. (E) 0.3%).

There was no notable news or progress on stimulus (still no deal) or Brexit (still no trade deal) overnight, although the “deadlines” for both events were either moved, or about to be moved, implying that negotiations on both stimulus and Brexit will continue for the coming days (this is what the market expected and already priced in).

Today could be a sneakily busy day with the ECB Announcement (E: € 500 bln Increase in QE), CPI (E: 0.1%/1.1%) and Jobless Claims (E: 724K) all coming today.

Regarding the ECB, the risk here is of a “not dovish enough” outcome as they’ve allowed expectations to get pretty high, and if that happens look for mild stock losses and higher yields global bond yields (including Treasuries).

CPI should stay tame at this point, but we’ll be watching this closely going forward.  Finally, weekly jobless claims are “noisy” right now because of the Thanksgiving holiday, but the bottom line is markets want to see claims moving lower, and a break below 700k would be a tailwind on stocks.

Inflation and Yields in 2021

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What’s in Today’s Report:

  • Inflation and Yields in 2021

S&P futures are trading at all-time highs this morning amid renewed stimulus hopes and more vaccine optimism.

Secretary Mnuchin presented a $916B coronavirus relief plan late Tuesday that satisfied demands from both sides of the aisle in Congress, upping chances for a yearend deal.

Vaccine news remains positive as the U.K. began administering the Pfizer vaccine yesterday and the FDA may approve the same vaccine in the U.S. as soon as tomorrow.

Looking into today’s session there is one economic report to watch: October JOLTS (E: 6.40M) due out shortly after the bell while no Fed officials are scheduled to speak.

There is a 10-Yr Treasury Note Auction at 1:00 p.m. ET which could impact the bond market and ultimately equities if the moves are significant enough however investor focus is likely to largely remain on stimulus talks and the next steps in the vaccine roll-out process.

Market Multiple Levels: S&P 500 Chart

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Today’s Report is attached as a PDF.

Futures are lower with most overseas markets today amid negative COVID-19 trends, no reported progress on stimulus and fading vaccine optimism.

Distribution of Pfizer’s coronavirus vaccine is beginning today in the U.K. but reports suggest far fewer doses will be available than initially thought (as little as half) while hospitalizations continue to hit new highs.

On U.S. stimulus, a stop-gap bill will be voted on tomorrow to buy time to reach an aid package as political gridlock remains.

Looking into today’s session, there is one lesser-followed economic report due to be released: Productivity and Costs (E: 4.9%, -8.9%) which will leave investors largely focused on U.S. stimulus negotiations, Brexit talks, and COVID-19 case/hospitalization trends. If there is disappointment on any of those topics, expect some profit taking in risk-assets as the market remains largely priced-to-perfection.

Market Multiple Table (Updated)

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What’s in Today’s Report:

  • Market Multiple Table:  December Update
  • EIA and Oil Market Analysis

Futures are little changed as overnight markets digested the week’s rally amidst better than expected economic data and more stimulus chatter.

Economic data was solid overnight as Chinese (57.8 vs. (E) 56.8), EU (41.7 vs. (E) 41.3) and British (47.6 vs. (E) 45.8) service sector PMIs all best estimates.

On stimulus, Democrat leader Pelosi and Schumer said the current $990 bln stimulus bill was a good “starting point.”

Today focus will be on economic data, especially Jobless Claims (E: 770K) because if they rise close to or above 800k, that will be more evidence the recovery is losing momentum.  We also get the ISM Services Index (E: 56.1).  Finally, stimulus chatter continues to heat up, and markets will embrace any further hints at negotiations (although a near-term deal still is very unlikely).

Why Stocks Rallied

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What’s in Today’s Report:

  • Why Stocks Rallied Yesterday

Futures are modestly lower this morning as yesterday’s record highs are digested while more positive vaccine news is being offset by yesterday’s mixed stimulus headlines.

News broke overnight that the U.K. approved Pfizer’s COVID-19 vaccine for emergency use as early as next week, although the market reaction was limited as vaccine hopes are already largely priced in with stocks at or near records.

Economic data was mostly upbeat overnight with German Retail Sales and Eurozone Unemployment both beating estimates however the stimulus stalemate continues to weigh on the global growth outlook right now.

Today, there are two economic reports to watch as the ADP Employment Report (E: 420K) kicks off jobs week while Motor Vehicle Sales (E: 16.1M) will be released later in the morning.

There are multiple Fed speakers today including: Quarles (9:00 a.m. ET), Williams (9:00 a.m. ET & 1:00 p.m. ET), and Powell (10:00 a.m. ET) with the bulk of the focus remaining on the Fed chair’s second day of testimony before Congress.

Bottom line, investors are focused on stimulus right now, underscored by the fact that there was not a more pronounced reaction to the Pfizer vaccine approval news overnight, so until we gain more clarity on the size and scope of the next coronavirus aid package, it may be difficult for stocks to continue to grind to new record highs in the very near term.

A Busy and Important Week for Markets

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What’s in Today’s Report:

  • There Are Still Risks to the Rally
  • Weekly Market Preview:  How Strong is the Economic Recovery?
  • Weekly Economic Cheat Sheet:  A Busy and Important Week

Futures are modestly lower following a quiet weekend as markets digest last week’s rally.

Chinese November PMIs were solid (manufacturing PMI 52.1 vs. (E) 51.5 and Services PMI 56.4 vs. (E) 56.2) implying the economic recovery is on going, which is a general positive for global growth.

Coronavirus cases and the amount/intensity of lockdowns appear to be leveling off in the near term, although at very elevated and stringent levels (and there are fears of a post-Thanksgiving spike in infections over the coming weeks).

Today there is just one economic report, Pending Home Sales (E: 2.0%) and no Fed speakers, so we can expect markets to focus on any headlines regarding the two key macro variables:  Stimulus (when and how much?) and Lockdowns (will there be more?).