The holiday-shortened week saw major market indices mixed, with the small-cap and technology stocks extending intra-day highs. Simultaneously, large caps struggled on coronavirus news of a possible new, more deadly strain and President Trump stalling stimulus talks in the US. The TSX managed a 0.5% gain for the week, the S&P 500 lost 0.17%, the Nasdaq added just 0.38%, the S&P 400 Midcap rose 1.01%, and the Russell 2000 jumped 1.69%. All indices are in positive territory for the year to date, with the TSX the laggard at 3.3%, followed by S&P MidCap at 12%, S&P 500 14.62%, and Russell 2000 20.11%, and the Nasdaq 42.71%.
On the economic data front, Canadian retail sales came in a little higher than expected at 0.4%, and wholesale rose 1%. Canadian GDP expanded 0.4% month over month, slightly higher than a Stats Canada flash report of 0.2%. In the US, initial jobless reports by the Bureau of Labor Statistics dropped by 89,000 to 803,000, still elevated but trending lower after a rebound higher from the coronavirus surge in November, resulting in further layoffs. Retail sales fell 1.1% in November, also impacted by the layoffs. The Conference Board reported the Consumer Confidence Index declined in December to 88.6 from 92.6 in November.1 However, the consumer’s assessment of current business and labor market conditions decreased to 90.3 from 105.9. The short-term outlook increased from November. Contrast the Conference Board data with the University of Michigan reporting their Consumer Sentiment index rising to 80.7 from the November reading of 76.9. Also increasing is the Economic Conditions 90.0 versus November’s 87.0 and Consumer Expectations rising to 74.6 form 70.5. The University’s data reflected a significant switch in sentiment based on political affiliation with the outlook from the democrats turning positive and the republicans reversing and moving negative. The most significant change occurred in the long-term prospects for business. This positive business outlook is rather strange, given the Democrat’s view on lockdowns and corporate and personal taxation.2
After months of partisan bickering over the sorely needed COVID bill, Congress finally came together, as they only can, and passed a 5,000-page pork-filled bill signed by President Trump on Sunday evening, days after he suggested he would not sign the bill unless Congress agreed to increase the individual payment from $600 to $2,000. President Trump’s initial refusal to sign the bill was a temporary set-back, with most agreeing that he would eventually sign despite the level of wasteful spending having nothing to do with the pandemic buried in the details of the bill. Wasteful spending is the hallmark of almost all governments, and no one was surprised at this bill.
In Europe, the Brexit negotiations finally reached an agreement on a trade deal characterized by some as a “hard” exit in name only. It still must be approved by all the member states. Meanwhile, the UK imposed the most stringent restrictions on London and other areas with higher COVID infection rates as air travel to the UK became banned because of the discovery of a new strain of the virus considered highly infectious. France closed the border between the UK, stopping all traffic. Until the vaccine is administered to most of the population and herd immunity is achieved, the return to normal is most likely to be choppy at best and take longer than anticipated.
Sources:
1 https://conference-board.org/data/consumerconfidence.cfm
2 http://www.sca.isr.umich.edu/
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Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.
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