After breaking the 30k barrier yesterday, the DJIA slid below 30,000 at close today, as the three day rally paused in anticipation of a slew of pre-Thanksgiving economic data.
The data being released before Turkey day includes jobless claims to consumer confidence and personal income, all of which are due before markets close Wednesday.
Positive vaccine news and the formal start of President-elect Joe Biden’s transition to power – including the selection of Janet Yellen as Treasury secretary – have fueled optimism about the outlook helping global shares hit record highs earlier on Wednesday, and were on course for their best month ever.
Joe Biden on Tuesday introduced his foreign policy and national security team which was basically extracted from the Obama administration, after President Donald Trump cleared the way to prepare for the start of his administration. Reports that Biden planned to nominate former Federal Reserve Chair Janet Yellen as Treasury Secretary, potentially easing the passage of a fiscal-stimulus package to counter COVID-19 damage, also cheered markets. As a result of the newly found optimism, the MSCI all world index rose to a record high of 622.12.
“The world is going to look a lot better this time next year than it does now, and that’s what equity markets are reflecting,” said Mike Bell, global market strategist at J.P. Morgan Asset Management. “The fact is the outlook has dramatically changed in the last month.” This message however differed from JPM’s economists…
Here’s what the data said:
Jobless claims rose last week, for the second straight week, to 778,000. Evidence that employers are still cutting jobs more than eight months since the pandemic started (and on the back of positive vaccine news). Prior to the pandemic, weekly jobless claims typically averaged around 225,00.
American consumers increased their spending last month by 0.5%, the weakest since the pandemic started. Despite Thanksgiving tomorrow, Americans seem perilous about spending with the virus still rampant, and Washington unable to come up with any further aid for struggling businesses and individuals. Incomes fell 0.7% over the same period, so this may explain the weak uptick in spending.
As a result of these tepid economic releases, economists at JPMorgan Chase have slashed their forecast for the first quarter to a negative 1% annual GDP rate.
“This winter will be grim,” they wrote in a research note.
Grim is putting it nicely for the small businesses on Main Street.
The data firm Womply says that 21% of small businesses were shuttered at the start of this month, reflecting a steady increase from June’s 16% rate. Consumer spending at local businesses is down 27% this month from a year ago, marking a deterioration from a 20% year-over-year drop in October, Womply found.
Main street will likely continue to suffer as a whole while the second wave runs rampant.
However, some areas had a show of economic strength.
In terms of manufacturing, orders for durable goods rose 1.3% in October, evidence that purchases of goods remains solid, even while the much larger services sector struggles.
Though, despite the poor fundamentals in America, investors remain optimistic that upcoming virus vaccines would help the industries hit hardest by the pandemic, from tourism to energy.
Global energy shares have risen almost 34% so far this month, on track for their best month on record as crude prices rally. Oil prices held near their highest levels since March on the improved global economic outlook.
Other major news around the globe:
- A ECB-backed committee is exploring options for a transition should Euribor, one of the cornerstones of the European Union’s financial system, cease to exist
- A significant number of asset managers risk being locked out of the interest-rate swaps market early next year unless they sign on to a new protocol designed to smooth the transition away from Libor, warned the chairman of the U.S. Commodity Futures Trading Commission
- Coronavirus restrictions in the U.K. will be eased over Christmas to allow as many as three households to meet indoors
- BOE policy maker Michael Saunders warned that the turn of the year will be rocky under the twin impacts of the coronavirus and Brexit — though the latter will ultimately be the bigger challenge (Sunak, Chancellor of the Exchequer, warned that the British economy is set to contract by by more than 11% in 2020, the biggest annual contraction in 300 years)
All of us here at S&S wish you a happy Thanksgiving!
Works Cited:
https://www.zerohedge.com/markets/dow-drops-below-30000-global-rally-fizzles-ahead-data-deluge