December 18, 2020
Markets set new highs once again this week as investors remain hopeful they will find a stimulus deal in their stockings just in time for Christmas. A package remained elusive as of late Friday, but Republicans and Democrats have continued to work around the clock to reach an agreement prior to recess. Advances on the vaccine front offered something additional to be grateful for this week as Pfizer began immunizing healthcare workers throughout the U.S. Also, on Friday, Massachusetts-based Moderna became the second company to have its Covid-19 vaccine endorsed by the FDA advisory panel for emergency use. Covid-19 vaccines and stimulus can’t come fast enough given that this week’s economic data showed a significant slowdown in momentum in the fourth quarter. Businesses and consumers have both pulled back amid a surge in Covid cases and stricter distancing measures. Despite this economic backdrop, markets have continued to push higher on optimism that the Federal Reserve’s monetary policy along with an additional stimulus package from Congress will allow the U.S. economy to weather the loss in momentum long enough for vaccines to become effective. For the week, the S&P 500 added 1.25%.
Federal Reserve Keeps the Tap Open
The Federal Reserve held rates steady following its final FOMC meeting of 2020 on Wednesday. The move was entirely expected given that the central bank has assured investors that it will continue to provide sufficient liquidity until the pandemic subsides. Economic momentum has been slipping lately in lockstep with the surge in Covid cases that have led to an increase in business closures. The slowdown has been most evident in the jobs market with jobless claims trending upwards once again this week, as well as in consumer spending where data is showing much softer retail sales than typical during the holiday shopping season. Even with the softer data, investors are betting the federal government will ultimately backstop matters. The Fed reiterated its position that it will remain flexible on its policy accommodation, suggesting it is willing to increase its purchases of bonds to inject additional liquidity if the economy slows further. The central bank is currently buying $120 billion a month in bonds, a pace it expects to maintain for some time.
Consumers Lose Their Holiday Cheer
Even with retailers rolling out the holiday deals early this year, sales fell -1.10% in November. That was the second consecutive monthly decline in retail sales following October’s -0.1% dip. As you might expect, rising Covid infections and stricter operating restrictions have led to a drop in household income and retail sales. This week’s retail sales report showed receipts down almost across the board with clothing store sales, restaurants and bars, and electronic stores down -6.80%, -4.00%, and -3.50%, respectively. Even auto sales, which had been particularly strong throughout the pandemic, slipped -1.70% in November. That figure also follows flat sales in October. With food and beverage and building materials sales being one of the few sectors registering month-to-month increases, the long awaited pullback in consumer spending has begun shining a bright light on the need for a stimulus package sooner versus later
Homebuilders Toast 2020
It’s been a banner year for homebuilding with homebuyers clamoring for new homes amid a tight supply of existing homes for sale and the need for more spacious accommodations. Housing starts rose 1.20% to a seasonally adjusted annual rate of 1.547 million units in November. Year-over-year, housing starts rose 12.80% and permits for future homebuilding rose 6.20%, which is a rate of 1.639 million units. Single-family homebuilding, which makes up the largest share of the housing market, rose 0.40% to a seasonally adjusted rate of 1.186 million units, the highest level since April 2007. That’s the seventh consecutive monthly increase. Low mortgage rates are also contributing to the demand, with the 30-year rate hitting a fresh record low this week of 2.67%, down from 3.73% a year ago.
It is hard to imagine, but despite the hardships and disruption that Covid-19 has brought to millions of Americans, it has been a good year for stock investors. Year-to-date, the Dow Jones Industrial Average, and S&P 500 have registered gains of 6% and 15%, respectively. It’s been an even bigger year for the Nasdaq, which has risen 42% due to its tech heavy exposure powering the stay-at-home transition. With the focus having shifted to what post-coronavirus life looks like by mid-2021, and with two vaccines and a stimulus package on the way, markets have rewarded investors with something to cheer about.
The Week Ahead
As 2020 draws to a much needed close, our Week in Review will not be published the next two Fridays, Christmas Day or New Year’s Day. Our next edition will be published on January 8, 2021 with big reports on the state of the jobs market, manufacturing, and services. In global news, China releases figures on trade and manufacturing.
Rare Christmas Star on December 21st
A rare “Christmas star” will be visible to the naked eye on December 21, 2020. Jupiter and Saturn will align in the sky and appear as one double planet for the first time in 400 years, and for the first time in nearly 800 years, their alignment will happen at night. The event is known as a great conjunction. In astronomy, a conjunction occurs when any two astronomical objects (such as asteroids, moons, planets, and stars) appear to be close together, as observed from Earth. It’s considered a “great” conjunction because it will occur between our solar system’s two largest planets.
Jupiter and Saturn have slowly been moving closer to each other over the past few weeks and will line up in the sky when their orbits meet. Jupiter orbits the Sun every 12 years, while Saturn’s orbit takes 30 years, causing Jupiter to catch up to Saturn once every 20 years. It will be the closest great conjunction since March 4, 1226 that sky watchers can view. In 1623, a similar conjunction of the planets occurred, but on the same side of the sky as the sun and wasn’t visible from Earth, so it’s been nearly eight centuries since the pair of planets were visible this close together in the night sky. Jupiter and Saturn will appear just one tenth of one degree apart on the evening of December 21, 2020. And, it’s happening four days before Christmas and on the Winter Solstice. The Winter Solstice occurs when the sun reaches its southernmost point in the sky, and the Northern Hemisphere has its shortest day and longest night of the year.
This celestial event has been interpreted as a possible source of the “Star of Bethlehem” in the nativity story from Christianity. According to the Book of Matthew, a bright star led three wise men from the east to see the baby Jesus. Astronomers worldwide are relieved that observatories have begun to re-open following shut downs in March so they can better observe this “once in ten lifetimes” event. Earlier this year, an analysis showed that over 100 of Earth’s largest telescopes temporarily shuttered their doors due to the COVID-19 pandemic. Many of these observatories are in remote locations where they can be far removed from light pollution associated with cities. These facilities rely on a team of technicians and engineers to perform tasks like maintaining the instruments and cleaning enormous equipment, and they closed their doors until they could determine how to operate safely.
NASA says that the spectacle will be visible with the naked eye, which is a great thing because the pandemic created a huge spike in sales and demand for telescopes and binoculars, causing retailers to scramble. If you are lucky enough to have either of these, you can use them to get a good view of both the rings of Saturn and Jupiter’s four large moons close together at the same moment. On the evening of December 21, 2020 cast your eyes to the southwestern skies 45 minutes after sunset and you’ll see this historic sight.
Happy viewing and Happy Holidays!
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