EC Weighing The Week Ahead: What Can Investors Do About Gridlock?

We have another normal week for economic reports, featuring retail sales and housing data (NAHB Index, building permits, housing starts). Industrial production is from November, so it is a bit stale. Jobless claims continue to be a current and reasonably reliable indicator.

The economy remains secondary for market participants. It has been ignored for months, so why change now? Attention has mostly been on more fiscal stimulus, with daily market moves registering even small hints of progress. It is a symptom of a greater problem – a gridlocked government. Since investors can expect more of this in the years ahead, it is time to ask: What can investors expect from a gridlocked government?

xkcd gets to the heart of the matter.

Last Week Summary

In my last installment of WTWA, I provided an assessment of three rebounds: the pandemic, the economy, and the market. These represent three quite different stories. More of the punditry is starting to analyze these discrepancies, but investors must look hard to find helpful contributions. Understanding these themes and how they fit together is the most important investor challenge. It is worth some careful thought.

Key Charts

I always start my personal review of the week by looking at some great charts. This provides a foundation for considering news and events. Whether or not we agree with Mr. Market, it is wise to know his current mood.

I am featuring Jill Mislinski’s chart of the market week. Her approach combines several key variables in a single readable format.

Another helpful example from this chart-laden post shows the increase in significant daily moves in 2020.

The folks at CNBC no longer get worked up about a “triple digit move” in the DJIA!

Sector Trends

Sector movement is another important clue to market trends.

Once again, Juan Luque provides us with some words of wisdom from the Incline trading desk:

The S&P 500 Index finished this week down 0.96% amid uncertainty of additional stimulus and increased Covid-19 virus cases. The Energy sector continues being the big winner moving strongly along the improving quadrant with almost a 20% return in the last month. It finished 1.14% up this week accompanied by a 0.10% return for the  Communication Services as the only two sectors that were up in the week.  The Financials sector is entering the Leading quadrant despite being down slightly for the week. Utilities continues losing momentum and is fast approaching the weakening quadrant with over a 6% loss in the last month.

Comment

The market declined 1.0% on the week with a trading range of only 2.2%. You can monitor this reduced volatility in my Indicator Snapshot, featured in the Quant Corner below.

Personal Note

Looking ahead at the calendar, my plan is to write WTWA next week, but not for the following two weeks – Christmas and New Year’s. I am looking forward to more family time, and I hope readers are as well. I hope to contribute a few shorter posts on some different topics.

Noteworthy

Statista dramatically illustrates the critical shortage of ICU beds.

The News Overview

Each week I break down events into good and bad. For our purposes, “good” has two components. The news must be market friendly and better than expectations. I avoid using my personal preferences in evaluating news – and you should, too.

My continuing assessment is that many of the normal economic indicators are not helpful in the wake of the COVID lockdown decline. Too many sources are focused on a change in direction, even if very modest, which has painted an overly optimistic picture. As the economy stalls, there will be a rapid switch in the diffusion indexes. The early signs are emerging. I expect some dramatic shifts over the next month or so.

Good

COVID-19 Vaccines

  • The FDA approved Pfizer’s vaccine for emergency use. The first injections are expected as soon as Monday. UPS and FedEx are cooperating in plans to begin distribution (NYT).

At a news conference on Saturday, Gen. Gustave F. Perna, the chief operating officer of Operation Warp Speed, the federal effort to bring a vaccine to market, said that boxes were being packed at Pfizer’s plant in Kalamazoo, Mich., and would be shipped to UPS and FedEx distribution hubs, where they would be dispersed to 636 locations across the country. Pfizer said shipping would start early Sunday morning.

Mr. Perna specified that 145 sites would receive the vaccine on Monday, 425 on Tuesday and 66 on Wednesday.

“Make no mistake, distribution has begun,” he said. UPS said it expected to start transporting the vaccine on Sunday morning, when employees stationed at Pfizer’s facility in Michigan will affix special Bluetooth- and radio-enabled tracking tags to each shipment. An aircraft waiting nearby will take the vaccine to the company’s Worldport air cargo hub in Louisville, Ky., a sprawling 5.2 million-square-foot sorting facility. Future shipments of the vaccine will also be transported by truck to the Louisville hub, which is up to a six-hour drive from Michigan.

  • The FDA provides the official timeline for development and approval and offers assurances that safety has not been sacrificed for speed.

FDA has rigorous scientific and regulatory processes in place to facilitate development and ensure the safety, effectiveness and quality of COVID-19 vaccines.

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Disclosure: If you have not already done a review of your current portfolio – asset allocation, sector exposure, and risk – now is a great time. You can still adjust with tax ...

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Comments

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Susan Miller 1 month ago Member's comment

Thank you Jeff. I always appreciate your thorough weekly reports.

Barry Hochhauser 1 month ago Member's comment

Very informative, thanks.