Weekly Marcet Commentary 12/18/2020

-Darren Leavitt, CFA

Choppy trade action throughout the week led US stock indices to another set of all-time highs. Coronavirus stimulus package negotiations dominated headlines while the December Federal Reserve meeting affirmed the Fed’s continued accommodative stance.  Economic data announced for the week was disappointing, but news regarding Moderna’s Covid vaccine was positive.

The S&P 500 gained 1.3% on a quadruple witching week that saw four sets of Marcet options expire on Friday.  The Dow added 0.4%, the NASDAQ rose 3.1%, and the Russell 2000 increased by 3.1%.  The US Treasury yield curve steepened as longer-dated maturities sold off on the possibility of more stimulus needing to be financed and the Fed’s accommodative tone.  The 2-year note yield was unchanged at 0.11%, and the 10-year yield increased six basis points to close at 0.95%.  Gold prices rose 2.5% or $46.58 to close at $1889.20 an Oz.  Oil prices increased 6% or $2.82 to close at $49.04 a barrel.

Interestingly, despite the move higher in oil prices, the energy sector was the worst-performing sector last week but was probably due to consolidation after two months of extreme performance.  Bitcoin eclipsed 20k during the week, trading over 10% higher in one day.  The cryptocurrency now trades at $23,579 while the dollar trades at its lowest level since April of 2018.

Stimulus package negotiations continued throughout the week and into the weekend.  The two-sides continued to make progress but were stuck on eliminating the Federal Reserve’s pandemic lending the facilities.  Republicans want the 429 billion in unused Cares Act funds to be rescinded, want Cares Act funding to halt at the end of the year, and want congressional approval to restart these lending facilities.  The bill looks like it will be tied to the broader government spending package and will include $600 direct payments to American households, $300 in additional unemployment benefits.  It is likely the vote on the two packages could come as soon as Monday morning.

The December Federal Reserve meeting was as expected.  The Fed’s stance will continue to be accommodative until full employment and inflation targets have been met.  The Fed announced it would continue its monthly purchase of $120 billion in US Treasuries and Munis.

Retail sales data was disappointing on the economic front, coming in at -1.1% versus expectations of down 0.2%.  Initial claims ticked higher for a second week in a row, coming in at 885K versus the consensus estimate of 795K.  Continuing Claims fell to 5.508 million from the prior reading of 5.781 million.  Housing starts and Building permits continued to show strength in the real estate Marcet.

There was more positive news regarding a coronavirus vaccine.  On Friday, an FDA panel recommended the FDA approve Moderna’s vaccine for emergency use.  The vaccine subsequently has been approved and sets up another front to fight the virus.

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