You know, people talk about this being an uncertain time. You know, all time is uncertain. I mean, it was uncertain back in – in 2007, we just didn’t know it was uncertain. It was – uncertain on September 10th, 2001. It was uncertain on October 18th, 1987, you just didn’t know. – Warren Buffett
In the holiday-shortened week characterized by very low trading volume, it was a mixed bag for the major stock averages as the S&P 500 Index finished slightly lower, the Nasdaq Composite Index closed slightly higher and the Dow Jones Industrial Average ended virtually flat. The big winner last week was the Russell 2000 Index of small cap stocks with a gain of nearly 2% as it closed just shy of an all-time high. Small cap stocks have been the standout performer recently as it was the eighth straight weekly gain for the Russell 2000 Index, which has now more than doubled from its low back in March. As the number of Covid-19 cases continued to rise, worries over an infectious new coronavirus strain surfaced in the United Kingdom; one that spreads much faster and is much more transmissible than the original strain. As a result, many countries began to bar flights from the United Kingdom in order to stop the spread. This bad news was offset by good news at home as Congress finally agreed to a $900 billion Covid stimulus deal. The bill includes direct payments to individuals of $600, puts $284 billion into the Paycheck Protection Program for small business loans and adds a $300 supplement in federal unemployment benefits per week. It also provides aid to hospitals and for rental assistance and extends the federal eviction moratorium. But Congress never lets a crisis go to waste and the bill also includes a lot of wasteful spending that is unrelated to Covid-19. For this reason, President Trump threatened to veto the bill, calling it a “disgrace” and demanded that the direct payments to individuals be increased to $2,000 and the “pork’ be eliminated from the bill. If the bill is not signed by December 28th, both the stimulus package and the funding to keep the government running will be in jeopardy, creating uncertainty that the economy can ill-afford at this time.
The final reading of third quarter GDP was 33.4% on an annualized basis compared to an expected reading of 33.1%. Existing home sales in November fell for the first time in five months. While demand for homes is still high, supply is extremely low, which is hurting sales and affordability as home prices rise. November new home sales also fell more than expected due to higher prices and a slowing economy. Durable goods orders rose modestly in November and orders for non-defense capital goods, a close proxy for business spending plans, rose for the seventh consecutive month. Both the U.S. consumer confidence index and the University of Michigan consumer sentiment index fell slightly in December as the coronavirus continues to take its toll.
The Federal Reserve announced that it will allow the nations’ big banks to resume share buybacks in the first quarter of 2021. The European Union and the United Kingdom reached a historic trade deal more than 4 years after the U.K. voted to leave the economic union. The agreement must still be ratified by United Kingdom and European Union parliaments and should aid in their economic recovery.
For the week, the Dow Jones Industrial Average edged up 0.1% to close at 30,199 while the S&P 500 Index slipped 0.2% to close at 3,703. The Nasdaq Composite Index added 0.4% to close at 12,804.
The only important pieces of economic data that will be released this week are the Chicago Purchasing Manager’s Index (PMI) for December, which is expected to be less than in November but solidly in expansion territory, and the weekly jobless claims, which have been elevated recently as Covid-19 cases have spiked across the country.
The bond market closes early on New Year’s Eve and both the stock and bond markets will be closed on New Year’s Day.
There are no quarterly corporate earnings reports scheduled for this week.
With third quarter earnings season over and few economic reports due to be released this week, the focus for investors will be squarely on the $900 billion fiscal stimulus package that was approved by Congress last week. The bill is over 5,500 pages long and was given to members of Congress to read a mere six hours before a vote was taken. A closer look at the bill shows that it has almost nothing to do with the coronavirus pandemic or relief but, instead, includes money for foreign aid, domestic programs and pet projects for states. Among the countries receiving aid are the Sudan, Ukraine, Burma, Cambodia, Nepal and Pakistan, which will be getting money to fund gender programs. There also is a list of government agencies, programs and services to long to name here that will be receiving money. House Democrat Nancy Pelosi once said that a bill needed to be passed in order to find out what is in it. While President Trump is right about criticizing the package and complaining that Americans should receive more than $600, a dysfunctional Congress is up against a deadline as millions of unemployed people will lose their benefits on December 31st unless this pork-laden piece of legislation is signed. Unfortunately, there are deadlines in place and the markets have assumed that the bill will be passed. Nevertheless, the uncertainty and concern will hover over the markets until it is finally resolved.