This week started with Moderna’s announcement of its vaccine that’s over 94% effective. It was followed later in the week with Pfizer’s announcement to request emergency authorization from the FDA for its vaccine. On the other hand, the seven-day average of daily new COVID-19 cases is 24% higher than last week and states are implementing new rounds of restrictions. Last time this happened, the economy pretty much came to a halt. Speaking of which, new jobless claims increased last week and came in higher than expectations as new restrictions and shutdowns seem to be seeping into the labor market. Investors tried to grapple with the positive and negative news throughout the week, but the bears took the W in the end and stocks closed lower for the week.
Moral of the story: Investors are already starting to reduce their expectations for economic growth through the end of this year and the beginning of next year as new restrictions start rolling in. Mask up, folks! Getting the virus under control is the only way to make this better.
Every day is Black Friday
Retail sales increased a meager 0.3% in October, which is the slowest rate since the spring and down from 1.6% in September. This is just another indication of a slowing economy as COVID-19 cases start to surge again on top of slowing job growth and diminishing federal assistance programs. Historically, holiday spending peaks between Thanksgiving and Christmas. This year, however, retailers have been offering earlier Black Friday deals (to also compete with Amazon Prime Day) and are closing stores on Thanksgiving to reduce crowds.
Moral of the story: Consumer spending has surprised to the upside all year and it’s possible that happens again this holiday season as consumers have saved money on travel and leisure. But if lockdowns happen in a big way, we’ll start to see unemployment creep back higher. Last time this happened the consumer was supported by federal unemployment benefits, but there seems to be little hope of any additional stimulus coming out of Washington before the new administration comes into office. Unfortunately, that’s still two months away and most existing federal unemployment benefits are set to run out before that.
Speaking of retail…
We saw earnings from a few major retailers this week including Walmart, Home Depot, Target and Lowes. All four retailers have been in the pandemic “winners” bucket this year. Walmart and Target have been able to leverage their online platforms to drive sales. Home Depot and Lowes are benefitting from everyone and their mom turning into Chip and Joanna Gaines while stuck at home. Because of the high expectations, despite solid earnings releases across the board, only Target’s shares reacted positively because management was able to convince investors that its growth this year is sustainable.
Moral of the story: A widely distributed vaccine doesn’t seem possible until mid-2021 at the earliest. This leaves another 6+ months of the current world order. In that environment, these large retailers with online capabilities have proven to be much more resilient than others and are likely to continue winning in the medium term.
We’ll be taking a Thanksgiving break next weekend, see y’all right here in two weeks!