What's Happening...


Commentary from our friend: Nell Sloane


Stocks continue to chop around near the upper end of the range. Since the beginning of December, the S&P 500 has spent nearly all its time trading between 3,600 and 3,700.

As for the new coronavirus stimulus bill, President Trump might have thrown a last-minute curve-ball tweeting last night that Congress should amend the $900 billion stimulus package and send it back to him.

In a video, he asks them to amend the $600 direct payments to $2,000 and to get rid of the "wasteful" items before he signs it. “Send me a suitable bill or else the next administration will have to deliver a COVID relief package.

And maybe that administration will be me," the president says in the same video.

So now what... Who knows? I suspect Wall Street simply shakes it off as bulls say they have waited this long so what's another few weeks. Perhaps much more important is the January 5th Senate elections in Georgia. Things could certainly get interesting in Washington between now and January 20th but if the recent past is any indication Wall Street really doesn't seem to care.

The bottom line is that bulls remain in control and heavily focused on the fact there are more vaccines coming into the game, massively pent up consumer demand, record low rates, and a ton of easy money in the mix.

Improving employment is going to stay a huge focus for the Fed and Treasury. The airlines are saying they are ready to start bringing back thousands of furloughed employees as travel in the Spring and Summer looks as if it will massively surge.

Air travel the past few days has shown steady improvement despite the surge in corona case. Most sources are saying holiday air travel will be just under 50% of where it was last year. I know that doesn't sound great but it is a sizable improvement from air travel a few months back.

One part of the U.S. economy that has stayed extremely strong has been housing. Recent data shows U.S. home sales up for a fifth consecutive month with "median" home price up +15% to +$312,000.

At the same time, the available inventory is -22% below last year at 1.28 million units, the lowest on record since 1982. Unfortunately, the latest December read on Consumer Confidence declined, which many expected as we battle the latest coronavirus restrictions and closures. However, the Expectations Index, based on consumers’ short-term outlook for income, business, and labor market conditions, increased from 84.3 in November to 87.5 this month.

That trend fits with the key narrative of stock bulls that are looking past the current struggles and focusing on a brighter future with vaccinations being distributed continuously in the months ahead. Today brings the last big data dump of the week with Durable Goods, Personal Income and Outlays, New Home Sales, the FHFA House Price Index, and Consumer Sentiment all on the calendar.

Remember, today is the last full trading day of the week with most U.S. markets closing early tomorrow for Christmas Eve and closed entirely on Friday for Christmas.

There is not much happening on the earnings front. Today brings results from Novozymes and Paychex, then the calendar is mostly empty through the end of the year.

Turning overseas, Britain and the European Union have just days before their "divorce" is official and the two still haven't finalized a post-Brexit trade deal. Worries about the UK leaving the EU without such a deal have grown even more heightened this week following chaos at Britain’s busiest port after France locked down its border amid fears of a new coronavirus strain in the UK.

Almost 3,000 trucks were stuck at the border, threatening a deficit of some fresh food items in British supermarkets before France agreed to end the suspension yesterday.

The prospects for a trade deal before the cutoff date are growing thin with the latest British offer rejected Tuesday night and the EU warning that any deal agreed after Wednesday will come too late to be implemented on January 1st.

From what I understand, the NEW virus strain identified in UK is thought to be +70% more contagious than previous strains of COVID-19. Stay tuned... I will be releasing a report tomorrow, but then our offices are closed annually for the Christmas and New Year holidays. This has been one crazy year...

Videogames a Bigger Industry than Sports and Movies Combined: Videogames have grown to resemble competition-based, interactive movies, and the COVID-19 pandemic has propelled the industry to make more money than movies and sports combined. Global videogame revenue is expected to surge 20% to $179.7 billion in 2020, according to IDC data, making the videogame industry a bigger moneymaker than the global movie and sports industries combined. The global film industry reached $100 billion in revenue for the first time in 2019, according to the Motion Picture Association, while PwC estimated global sports would bring in more than $75 billion in 2020. Both of those industries suffered from the effects of the COVID-19 pandemic in 2020, however, while the videogame industry is expected to show double-digit growth this year following high-single-digit growth in the previous two years. Experts forecast that strong growth will continue in 2021, following the recent introduction of next-generation gaming consoles from Sony and Microsoft, even as COVID-19 vaccines are rolled out. Source Market Watch

Airlines Bringing Back Thousands of Workers: Airlines are preparing to call back tens of thousands of workers they let go in October now that Congress has approved government assistance to cover carriers’ payroll through the end of March. The $900 billion relief package includes $15 billion for airlines to pay all their workers. Carriers are hoping—for the second time—that the government assistance will serve as a bridge through a rocky period. Many travel executives believe there is pent-up demand for travel that could be unleashed next summer. If they are right, airlines will need as many pilots, flight attendants, mechanics, and baggage handlers as they can get in order to keep up. Airlines furloughed over 32,000 workers in October. Not all airlines cut staff once aid ran out in the fall. Delta Air Lines didn’t furlough any workers, though many have been working reduced hours. The legislation may halt contentious negotiations between Southwest Airlines and several of its labor unions: the company had told workers that furloughs in 2021 would be unavoidable unless unions agreed to concessions or the government provided more aid. A Southwest spokesman said the airline is “very encouraged” but needs to examine the final terms. The package once again requires airlines to maintain service levels to ensure that rural areas don’t lose air service, which could mean that carriers have to restore flights that have been cut in recent months. Source WSJ

Vaccine Progress and the New Coronavirus Strain: The first Covid-19 shots have been given to more than 2.2 million people in six countries, according to data collected by Bloomberg. It’s the start of the biggest vaccination campaign in history and one of the largest logistical challenges ever undertaken. Vaccinations in the U.S. began Dec. 14 with health-care workers, and so far 614,117 doses have been administered, according to a nationwide tally from the Centers for Disease Control and Prevention. Those numbers are expected to surge in coming days with the distribution of a second vaccine by Moderna Inc. The U.S. is allocating 5.1 million doses of Pfizer and BioNTech’s vaccine and 6 million doses of Moderna’s shot for distribution through this week. Both vaccines require two doses taken several weeks apart. The second doses are being held in reserve until they’re ready to be administered. There has been some alarm this week over a new strain of COVID-19 identified by researchers in the United Kingdom. It became prevalent across southeast England in November and reportedly accounts for 60% of recent infections in London. However, public health officials are cautioning against overreaction to the new variant, given the lack of unknowns about how it behaves and whether it is, in fact, more infectious. The CDC said in a statement, “there is not enough information at present to determine if this variant is associated with any change in severity of clinical disease, antibody response, or vaccine efficacy.” Additionally, the CDC says the strain may already be circulating in the U.S., but they don't know as scientists haven’t sequenced the genetic coding for many Covid-19 infections here Source Bloomberg

Biggest Tech Mergers and Acquisitions of 2020: Since down markets are the perfect time to consolidate, 2020 saw big tech companies take the opportunity to grow their business with major mergers and acquisitions (M&A). After a quieter year in 2019 that saw tech investment activity dip, it was a resurgence to expected form. Though 2020 was all about COVID-19 and its impact on the market, the tech sector had major deal flow even before the pandemic began. By the end of February, six of the 19 biggest tech mergers and acquisitions of the year had already occurred—and the month of February alone saw the most major deals of any month with four. The first deals of the year were also some of the biggest. Morgan Stanley’s purchase of online brokerage E*TRADE for $13 billion and Koch Industries’ $11 billion completed takeover of software company Infor were the 4th and 5th biggest tech acquisitions of 2020. Of the 19 deals over $1 billion tracked above, Salesforce and Nvidia were the only companies to make multiple major acquisitions. And although tech saw gains across the sector, most of the major M&A activity was centered around semiconductors Source Visual Capitalist

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