"Truth, like gold, is to be obtained not by its growth, but by washing away from it all that is not gold."
-- Leo Tolstoy
Pan Full of Sand
Equity markets come off of a week that may have seemed quite complex in real time, but in reality revealed very little. The Food and Drug Administration (FDA) considered an Emergency Use Authorization for a Covid-19 vaccine, but held off until markets had closed. American legislators tried or pretended to try to compromise on some kind of renewed fiscal support for an economy once again hampered by this pandemic. The infection surges, as it has once again for weeks. People, families suffer.
Among the three major U.S. equity indices, the one-week loss ranged anywhere from slightly more than half of one percent to slightly less. Weekly aggregate trading volume finished well below the week prior as well.
Only the small-caps showed gains. Daily trading volume tailed off throughout the week, too, with Friday the slowest trading day for constituent members of both the S&P 500 as well as the Nasdaq Composite since the half day after Thanksgiving. Breadth for the most part hung in there, even on the weaker days, again, for the most part, carried by small to mid-caps. The Energy sector finished the week at the top of the performance tables, and was the only weekly winner. Investors made some effort to avert risk going into the weekend as the VIX climbed up off of its recent floor, and put/call ratios moved sharply higher on Friday as the five-day period wound down to a conclusion.
Mining for Truth
Perhaps one understands. Perhaps one does not. Perhaps I do not understand. That said, I do believe that a number of uncertainties either resolve or start to resolve over the coming five-day period that will, or at least could, reveal what lies to our immediate front.
First, we'll mention the vaccine news that all of you well know by now. Since we last met, the FDA took action, and the Pfizer (PFE) /BioNTech (BNTX) vaccine has been loaded onto planes and trailers and pushed out to sites around the country as designated by state leadership. This week, the same Vaccines and Related Biological Products Advisory Committee that considered that vaccine on Thursday will consider the merits of a second messenger RNA vaccine, this one developed by Moderna (MRNA) . Let's hope, in 168 hours, I am writing and you are reading about a second vaccine being loaded onto vehicles and pushed out to those prioritized by either necessity or personal reality.
Second, this is a very light earnings week. The big banks don't report for another month or so. That means the macro increases in importance for numbers nerds (most of us, if this is how you support your family), and this is a key week for such macro. After a quiet Monday, the Federal Reserve will post data on November Industrial Production on Tuesday morning, followed by the Census Bureau's numbers for November Retail Sales on Wednesday. Both are expected to have tailed off somewhat from what has been a rather decent period of growth. Weaker data could pressure Congress. Hopefully, something does. Rounding out the week will be November Housing Starts that come with regional manufacturing surveys out of both New York and Philadelphia as a backdrop.
Third, as we have just mentioned the Federal Reserve, this is a Federal Open Market Committee (FOMC) policy decision week. The committee goes into session on Tuesday and will have something to say on Wednesday afternoon. There will be the eight-times-a-year routine of an official statement released at 14:00 ET that will come accompanied by the committee's often ridiculous (four times a year) economic projections, which then will be followed a half-hour later by what will be the most important part of the afternoon, Chairman Jay Powell's press conference. It really is time to get rid of those economic projections. Often foolish, rarely close to being correct, and many times showing consensus views across different categories that could not likely coexist from a statistical perspective. I won't even get into the outlier views, which could almost be comical if not intended to be taken seriously.
Fourth -- and based on the level of success, possibly second -- negotiation over fiscal stimulus will continue in Washington. There is no doubt in my military mind that neither side understands (if they do, then indeed, shame on them) the urgency with which they must act. The bipartisan "deal" being bounced around will cost less than $1 trillion and leave gaping some of the most glaring financial needs that must be addressed. I have written repeatedly for many months that the roughest of estimates require another $2 trillion of spending. This is conservative, and my fiscal views usually are, so my opinion that this "patch" is not even halfway there should carry some merit.
All this does is leave more work to do, which of course will mean more partisan negotiation. Why? Because most of these folks don't live the code. They take the oath, but it is not who they are inside, and that, my friends, is the saddest reality of all. Should those elected attempt to patch the economy this week, a larger deal that hopefully includes a large plan to rebuild the nation's infrastructure will be fought over next year, after all of the new kings, knights and bishops are sworn in. Common sense. Cities and states will crumble without some help. Businesses (and even schools) will close without protection.
Fifth are the market factors that are less in your face but could still come out and get you if one is not fully cognizant of one's environment and the directions that may ultimately present as avenues of attack. This is a light earnings week, but there are still earnings. This week, you'll hear from both FedEx (FDX) , a firm currently very active in participating in both "Operation Warp Speed" as well as in e-commerce delivery ('tis the season). Then, in very odd fashion, Nike (NKE) will report this Friday after the closing bell. If you've been around the block even just once, you know that major corporations very rarely schedule their quarterly releases for Friday nights, and this Friday just happens to be a "quadruple witching" expiration event that hooks into an S&P rebalancing. Could there be a more overt effort made to camouflage performance? I don't know. I'm asking you.
This means that trading volumes will be artificially high to begin with. Staying with corporate news, Tesla TSLA heads into both the S&P 100 and S&P 500 on Monday morning. Though many tracking funds will have a number of days to adjust their holdings, starting probably this week and ending probably next week, Friday's close will be the big one for that stock. Question you wanted an answer to but were afraid to ask? Who are the losers? Gotcha. A name you may have never heard of -- Apartment Investment & Management (AIV) will be jettisoned from the S&P 500, and one you surely have heard of, Occidental Petroleum (OXY) will say "so long" to the S&P 100. I still cannot hear that name without thinking of Armand Hammer, who ran OXY from 1957 until his death in 1990 at age 92.
Sixth...Oh, one more thing... With the joy of the holiday season comes not just the tax-loss season, but also the season of mutual funds' capital gains distributions. You may be sitting on more income than you know. So, as some readers may not know exactly why some securities might bounce around like the ball in a rugby match, remember that those funds you sort of loosely follow will be going ex-dividend probably in sporadic fashion for the rest of the year. In addition, remember that the traditional Santa Claus rally that our less financially educated pundits have been talking about since November does not start until after the Christmas holiday and runs through the first couple days of the new year. That's it. There is no Santa in November or early to mid-December. If they buy the market during that period, there are other reasons, namely vaccines and/or stimulus.
Just a heads up: You might owe the federal and state governments some money that you may not have factored in, especially if you do your own quarterly estimates and those estimates were figured out either ahead of or early on in this pandemic. Just a heads up. Stay nimble. Stay alert.
On the Vaccine
As readers know, the Pfizer/BioNTech vaccine is in motion. The first U.S. citizen could be inoculated with the first of two doses either today (Monday) or tomorrow. The federal government has made decisions of allocations to states and territories based on population size. Initially, Pfizer is shipping 2.9 million doses with another 2.9 million doses for those same individuals shipped three weeks later. Pfizer expects to distribute 25 million doses to the United States (12.5 million individuals immunized) by year's end. Health care professionals and those living either in nursing homes or assisted care facilities will be prioritized, with Walgreens (WBA) and CVS Health (CVS) taking on the task of getting that done. McKesson (MCK) has also been signed to help distribute all vaccines developed other than Pfizer's.
McKesson may get its chance to act soon as Moderna's vaccine goes to the advisory committee on Thursday and there are high hopes for Johnson & Johnson's (JNJ) one-dosage vaccine to possibly show results from clinical testing as soon as January. The United States agreed to purchase a second lot of 100 million doses from Moderna this past Friday. The somewhat delayed vaccine candidate developed by AstraZeneca (AZN) is also considered to be in the short- to medium-term pipeline.
I was going to drone on and on about Tesla and the Fed, but I don't want to accidentally put you in a coma on Monday morning. We'll talk about these events as we approach them, as the hour draws late and morning light is not all that far away.
Oh, you were going to ask about the code. You may have your own, but mine goes God, Family, Country, Corps. Getting there is so difficult, yet so very easy. We use mottos like "Always Faithful" or "Death Before Dishonor." To put it plainly, imagine if your Mom could see you when in doubt. If that would embarrass you, just don't do it.
Economics (All Times Eastern)
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The Fed (All Times Eastern)
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Today's Earnings Highlights (Consensus EPS Expectations)
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