Have you seen, there’s a vaccine
Pfizer announced early Monday morning their COVID-19 vaccine was over 90% effective. We knew there were vaccine announcements coming, but efficacy this high (vs the flu vaccine which is closer to 40%-60% effective) is the silver bullet investors were waiting for – there’s officially an end in sight. Stocks that had been beneficiaries of the pandemic (Zoom, Peloton) fell in a big way while stocks that had gotten slammed by the pandemic (hotels, financials, energy) saw large recoveries. There was a double-digit difference in performance of the pandemic “haves” and “have nots” – a type of spread that normally happens over the course of a year – on Monday. I was counting down to the weekend by ~11am on Monday, needless to say, it’s been a long week…
Moral of the story: The resolution of the presidential election last weekend meant the market was ready to digest new news and the vaccine announcement provided just that. The repricing warranted in the stock market from this development literally happened over the course of hours on Monday (yay market efficiency!) but the rally continued in a smaller way for most of the week with a few interruptions from record COVID-19 cases causing concern about the upcoming months.
Wall of worries
This was a fairly light week of economic news (partly because of the Veteran’s Day holiday) but the latest jobless claims report continued to support the story told by the strong jobs report we saw last week. New initial claims fell to 709k from 757k the week before and continuing claims fell 403k to 6.8m.
Moral of the story: While this is good news, half the decline in continuing claims was a result of those claims simply transferring to the Pandemic Assistance programs, which extend unemployment benefits from 26 to 39 weeks. There are currently 13.5m people receiving these benefits, which are set to expire at the end of this year. The lack of a blue wave, the news of a vaccine, and healthier unemployment all reduce the chances of a large, comprehensive stimulus package. But unless these unemployment benefits are extended in some capacity, there could be a major windfall coming our way.
Lower for longer
The consumer price index, which measures the inflation in the prices of everyday consumer goods (groceries, clothes, cars, rent, etc.) remained unchanged in October after four months of steady gains. On an annual basis, this brings inflation to a meager 1.2%, significantly lower than the 2% average target set by the Fed.
Moral of the story: Weak inflation and high unemployment mean the Fed is in no rush to change the accommodative policies that are helping prop up the economy. Plus, even though there’s news of a successful vaccine, we’re starting to test our healthcare system again with seriously elevated hospitalizations and the holiday season will just add fuel to the fire. We’re already seeing state and local shutdown mandates, which will prove to be challenging for the economy over the next few months before a vaccine is widely distributed.