Bassanese Bites: Race against time – November 16 2020
Global post-U.S. election optimism continued last week, buoyed by hopeful signs with regard to a COVID vaccine. The S&P 500 rose 2.2% after a solid 7.3% gain in the previous week to reach a new record high.
While Pfizer’s vaccine results suggested an impressive 90% effectiveness, initial market exuberance was then tempered by the reality of production and distribution challenges before it could be widely used next year. A further decent drop in U.S. weekly jobless claims also added to the evidence that the economy has continued to recover pretty well into the December quarter, notwithstanding rising COVID-19 cases.
That said, with the case count surging in the U.S. over the past week or so, and more cities announcing a return to restrictions, it would not surprise if U.S. economic data starts to cool for a time. America’s third-largest city, Chicago, announced a return to a ‘stay at home’ lockdown for 30 days, following a surge in new cases higher than that seen in April – albeit with still a notably lower number of deaths (at least so far). With cases also rising in New York, there’s a growing risk that tougher restrictions – even a return to lockdown – could be imposed in America’s biggest city over the next week or so.
Meanwhile, it does not help that hopes for further near-term U.S. fiscal stimulus have all but evaporated, and a package might now not see the light of day until Biden takes control in late January.
All up, the near-term picture is quite mixed – which one would think should cause equity markets to at least consolidate for time. While COVID rages on in the United States, the market knows that fiscal and monetary stimulus is waiting in the wings, vaccines are being furiously developed, and that economic activity has so far shown an admirable capacity to bounce back quickly once temporary restrictions are lifted. There are also tentative signs that recent restrictions in Europe are once again leading to a peak in new infections.