Bassanese Bites: Deadlock – December 14 2020
Global markets
It was a frustrating week for global markets with the U.S. failing to agree on a new stimulus plan and the UK and EU also failing to agree on the terms of their post-Brexit trade relationship. America’s raging COVID crisis – and recent ratcheting up of social distancing restrictions – is also starting to take its toll on the economy, with a strong 137k lift in weekly jobless claims to 853k. As anticipated, the European Central Bank responded to Europe’s recent COVID wave with an expanded stimulus program – it is also likely hoping to contain strength in the Euro.
All that said, were it not for the vaccine cavalry – riding to the rescue in the nick of time – the outlook for the global economy and equity markets would likely be a lot more dire at present given the repeat COVID waves still buffeting major economies.
The UK became the first country to roll out vaccine treatments last week and the U.S. is set to start its own program early this week. Market focus, however, likely will remain on the progress (or lack thereof) in U.S. stimulus talks, and to a lesser extent UK-EU talks. The Fed also meets this week but is expected to keep policy unchanged. Telsa joins the S&P 500 on Friday with a weight of 1.5%. Trading at a price-to-forward earnings ratio of 107, the good news is that it makes the FAANG stocks (trading on forward PEs of between 20 and 40) look decidedly cheap. I’d note that Facebook listed at a similar nosebleed valuation and we all know how that turned out! Can Tesla replicate Facebook’s success?
