- Stocks will continue to focus on both the growing virus outbreak and the potential for a rebound next year, once vaccines are distributed.
- The coming holiday week could continue to be a period of consolidation for the stock market, as restrictions impact the economy during the important Thanksgiving holiday period.
- Markets are watching for any potential news on a fiscal stimulus package from Congress.
- Important data in the week ahead includes durable goods and personal income and spending.
Stocks could continue to struggle with the twin themes of the spreading virus and a potentially robust recovery, once a vaccine is deployed next year.
In the coming week, the restrictions the spreading virus is imposing on the economy will be clear, when many Americans choose to stay at home over the Thanksgiving Day holiday and partake in much smaller celebrations.
"On the Covid side, there will be more lockdowns, but I think the message is loud and clear. 'People: Don't be cavalier around Thanksgiving,'" said Tom Lee, founder of Fundstrat. Thanksgiving traditionally kicks off the holiday shopping season, an important time of the year for the economy which could be hobbled by Covid. The U.S. reported 182,000 new cases Thursday.
Lee said the market will continue to feel the push pull of the drag from the pandemic against the promise of recovery, seen in the rebound of cyclical stocks. Cyclical sectors industrials and materials were both up about 1% for the week, and financials were up a half percent. But tech and communications, both big tech and growth sectors that benefited from the stay-at-home trade, were lower.
"I think stocks are kind of consolidating and maybe it's going to go on for a couple of days," Lee said. He added that stocks could start to perk up late in the week, and investors are expecting stocks to head higher into year end. "The cyclicals have held up like champs, and the small caps, and value have been really holding up," Lee said.
Stocks were mixed in the past week, with the Dow and S&P 500 slightly lower, and the Nasdaq up 0.2%. The Russell 2000 was the star performer, with a gain of 2.4% for the week. The Russell is up 16% since the beginning of October.
The S&P shot up sharply on Nov. 9 when Pfizer announced its vaccine as 95% effective, but it never regained that intraday high of 3,645 and has since traded in a sideways pattern. The S&P 500 closed at 3,557 Friday, down 0.8% for the week.
JPMorgan economists warned Friday that the "winter will be grim" and they forecast that the restrictions due to the virus will drag on the economy, resulting in a negative first quarter. They expect a strong rebound in the second and third quarter, once the vaccine is distributed and an anticipated fiscal stimulus program takes hold.
"It's hard for some investors to look over that period and see the recovery. I think this is where we are now," said Katie Nixon, Northern Trust Wealth Management CIO. She said the concern is how much damage the restrictions will do as the virus spreads at a record rate. "This is happening and with exponential force right now. It's just shocking to see the numbers and how state and local authorities are trying to deal with it in a variety of ways."
But Nixon said she's very positive on the market longer term, and the economy will heal once the vaccine becomes available. She said fiscal stimulus from Washington would help.
Senate Majority Leader Mitch McConnell signaled he would again discuss a package with Democrats, and that funds that were being used for Fed programs could be diverted to a fiscal package.
The Treasury Thursday indicated it would not continue five of the Fed's emergency program from when they expire at year end, surprising some in the markets. The Fed objected, but the markets took the development in stride, as traders expect the programs to be reinstated if financial conditions warrant it.
The Fed releases the minutes of its last meeting Wednesday afternoon, and that could be important as traders are watching to see if the central bank reveals any detail of discussions on potential changes to its asset buying program. There is widespread speculation the Fed could tweak its $80 billion Treasury buying program at the December meeting to include more longer duration notes and bonds, a move that should hold down already low long-term rates.
Also in the week ahead, there is some key data including personal income and spending and durable goods on Wednesday. Consumer confidence is Tuesday and consumer sentiment is released Wednesday. There are also a few Fed speakers, who will be watched closely for any comments on the expiring programs.
Any word on fiscal stimulus talks will get market attention, though there is skepticism anything will before next year. If a package is not passed, the unemployment benefits going to 12 million Americans will end at the end of December, and mortgage forbearance will end. Bank of America economists said if there is no stimulus package to prevent these things, there would be a 1.5 percentage point drag on first quarter growth.
"The biggest thing we need to do is prevent bankruptcies and prevent unemployment from rising," Nixon said. She said the labor market has stalled, and it is important to avoid the deep scarring from bankruptcies.
She said it is not too late for investors to get in on the rotation into growth,and some investors are worried they didn't get in on time. "Value has so much to go to catch up on growth," she said.
Week ahead calendar
9:45 a.m. Manufacturing PMI
9:45 a.m. Services PMI
1:00 p.m. San Francisco Fed President Mary Daly
9:00 a.m. S&P/Case-Shiller home prices
9:00 a.m. FHFA/home prices
10:00 a.m. Consumer confidence
11:00 a.m. St. Louis Fed President James Bullard
12:00 p.m. New York Fed President John William
8:30 a.m. Initial jobless claims
8:30 a.m. Durable goods
8:30 a.m. Q3 GDP second reading
8:30 a.m. Advanced economic indicators
10:00 a.m. Personal income/spending
10:00 a.m. New home sales
10:00 a.m. Consumer sentiment
2:00 p.m. Fed meeting minutes
Thanksgiving Day holiday
Stock market closes at 1 p.m.