The Week on Wall Street
Stocks retreated last week on rising COVID-19 infections and slow progress on an economic relief bill. The Dow Jones Industrial Average dipped 0.57%, while the Standard & Poor’s 500 dropped 0.96%. The Nasdaq Composite index fell 0.69% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, declined 0.05%.
Stimulus Stalls, Stocks Stumble
The market grappled all week with worries over rising COVID-19 cases and the economic restrictions that followed. Nevertheless, there were moments of optimism— such as the starting of vaccinations in the U.K.— that drove markets to record highs. Gains could not be sustained as an agreement on a fiscal stimulus bill remained elusive and daily news regarding COVID-19 cases undermined investor sentiment.
Markets were also challenged by having to absorb a number of new and secondary stock offerings last week, including two high-profile technology IPOs. The Energy sector continued its strong run, while small and mid-cap stocks posted another week of positive performance.
A “No-Deal” Brexit More Likely
The prospects of an agreement to manage Britain’s exit from the European Union by year end dimmed as the two parties failed to narrow their differences in a meeting held last week.
Though primarily a European issue, a no-deal Brexit may hold consequences for U.S. businesses and investors. The failure to reach an agreement has the potential to disrupt an already fragile supply chain and cause issues in the financial markets. A supply chain disruption may weaken European economies (e.g., Germany) that are important to American companies. Another consequence may be a stronger U.S. dollar, which would make American exports more expensive and less competitive.
Little time remains in striking an agreement since the prevailing framework ends December 31, 2020.
THIS WEEK: KEY ECONOMIC DATA
Tuesday: Industrial Production.
Wednesday: Retail Sales, Federal Open Market Committee (FOMC) Announcement.
Thursday: Housing Starts, Jobless Claims.
Friday: Index of Leading Economic Indicators.
THIS WEEK: NOTABLE COMPANIES REPORTING EARNINGS
Thursday: General Mills (GIS)
Friday: Darden Restaurants (DRI)
Final Thoughts
The economic calendar will be jampacked this week, but the rollout of the vaccine should dominate the headlines. Unfortunately, the lingering debate in Washington with regard to the proposed pandemic stimulus will also be a hot topic. I say "unfortunately" because it should have already been done.
In addition, the Federal Reserve will have its last meeting of the year and we will learn more about their plans for bond purchases in 2021. The weekly jobs number will also shed more light on the impact of the recent shutdowns. It's hard to believe that this negative trend hasn't prompted Congress to act. Later in the week, we also have PMI data points for manufacturing and service sectors. Additionally, the November retail sales report will give us some insight into the behavior of the consumer in light of the resurgence of COVID cases.
PS - Tesla will be added to the S&P 500 at Friday's close. At its inclusion, it will be the seventh largest company in the index. Go figure.
Stay healthy, be well and have a safe week!
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December 14, 2020
