After setting a record high earlier this week on the release of additional, positive Covid-19 vaccine news, the Dow Jones Industrial Average retreated slightly to end the week lower by -0.73%. This week’s positive vaccine news came from Massachusetts-based Moderna which reported its vaccine candidate showed 94.50% efficacy in preventing Covid-19 in trial participants. Although additional data is still needed in order to apply for emergency use authorization from the Food and Drug Administration, it is expected to apply for authorization in the coming weeks. Moderna would be the second drug maker, after Pfizer, to seek emergency use authorization. In the meantime, case counts in the U.S. continued to surge with 187,833 Covid-19 cases reported on Thursday, the highest one-day total since the pandemic began. With cases surging throughout the U.S., several states and local governments have moved to tighten restrictions, which has started to dent economic activity such as retail sales and jobless claims – both of which came in lower than analysts had expected.
Retail Sales Gains Ease
Retail sales increased 0.30% in October, below economist estimates of a 0.50% gain. Data for September was also revised down to 1.60% from a previously reported 1.90%. October’s slower growth was driven by a drop in sporting goods and hobbies, clothing, furniture, drinking, and dining out. Even motor vehicle sales slowed during the month, which had seen steady demand during the pandemic as consumers sought private transportation options. Retail sales could be in for a tough quarter as more states and local governments impose tighter restrictions to battle the second wave of Covid-19 and as stimulus aid remains stalled in Congress. Tighter restrictions and slimmer wallets come at one of the worst times for retailers which traditionally see heavy foot traffic during the busy holiday season. Lower demand could lead businesses to resort to layoffs in order to remain afloat just as they did in the spring. The latest jobless claims data suggests that this is already beginning to take place as initial claims rose to 742,000, an increase from the previous week’s 709,000.
Industrial Production Climbs
Industrial production, a measure of output at factories, mines and utilities rose a seasonally adjusted 1.10% in October. That was an improvement from the revised -0.40% decline in September. Manufacturing, the biggest component of production, rose 1%, up from September’s 0.10% increase. Utility production also rose 3.90% while mining output fell -0.60% and remains -14.40% below its year ago level. Overall, output still remains -5.60% below pre-Covid levels, but could get a temporary bump in the short term as consumers hunker down and stock up amid a second wave of Covid-19 and the Thanksgiving holiday.
Housing Market En Fuego
Homebuyers continued to snap up houses in October. Sales surged a stunning 26.60% annualized. The surge came despite short supply and rising prices. At month’s end, housing stock stood at 1.42 million homes, a -19.80% drop from October 2019. The current sales pace represents a mere 2.50-month supply of homes, the lowest on record. Homebuyers have continued to buy despite the median price of homes increasing 15.50% year-over-year to $313,000. That’s the highest median price on record and reflects strong sales at the high end of the market. Sales of homes above $1 million nearly doubled while sales fell in the lowest price range. October’s surge constituted not only homebuyers escaping to the ‘burbs to avoid Covid-19, but also those wanting to lock in low rates and make a move before winter sets in.
The market followed an arc of emotion this week as positive vaccine news clashed with rising case counts, predominantly weaker data, and a minor turf war between the Treasury and the Fed over the control of unused emergency funds. Despite the positive vaccine news, investors are reawakening to the fact that we are still in the midst of a serious pandemic. Congress remains gridlocked on a second, targeted relief package, which managed to make markets all the more sensitive to the Treasury department’s request that the Fed return nearly $70 billion in emergency funds that had been previously allocated to back the credit and municipal bond markets. The reality is that the funds are presently unused, and it was the request’s symbolism that spooked investors by suggesting that perhaps the government is less apt to back credit markets than it had been. That is simply not the case, but it was the proximate cause that put investors on edge. We’re likely to see more handwringing in the weeks ahead. The vaccine developments over the past several weeks have removed a great deal of uncertainty over whether things will get better, but the calculation for investors has now shifted to just how bad things will get before they improve.