US markets witnessed a mixed week, with the S&P 500 (GSPC) and the Dow Jones Industrial Average (DJI) giving negative weekly returns. The Nasdaq Composite (IXIC) managed to eke out some gains, thanks to some interest returning in technology and stay-at-home names during the week as coronavirus cases hit record highs. While the week began with positive vaccine data from Moderna (MRNA) and subsequently from Pfizer (PFE), a possible rift between the US Treasury Department and the Federal Reserve dented sentiment along with a spike in COVID-19 infections.
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US virus situation deteriorates
The country reported nearly 200,000 fresh infections of the novel coronavirus on Friday, a record spike in its daily cases count, and worries over higher cases increased ahead of the Thanksgiving holiday in the country this week. CNBC reported that Friday’s jump has brought the seven-day average of new cases to more than 167,600, up 20% from the previous week.
With markets attempting hard to focus on vaccine-related positive developments and a look-ahead approach, record spikes only drag investors back to getting increasingly worried about the virus’ economic impact due to the impending shutdowns or restrictions. Higher cases also severely halt chances of a quick recovery from the low points earlier this year, making it a case for investors to have a negative view of the market.
Moderna Inc (MRNA) fuelled optimism around a coronavirus vaccine after it said its experimental COVID-19 vaccine was 94.5% effective in preventing the infection that was based on interim late-state data. Pfizer and its German partner BionTech (BNTX) reported on November 18, 2020 a vaccine efficacy rate of 95% for their SARS-CoV-2 vaccine. Pfizer Inc has also applied to the US Food and Drug Administration for emergency use authorization of the vaccine.
The positive vaccine-related developments raise hopes of an end to the raging pandemic, boost hopes of an economic recovery and a resumption to normalcy. Investors have largely been residing in safe bets of technology, stay-at-home and vaccine maker stocks and concrete evidence of vaccines effectiveness could nudge them to look at cyclicals and traditionally strong-earnings companies that could have taken a hit due to the pandemic-led movement restrictions.
Pulling The Plug
US Treasury Secretary Steven Mnuchin has said that the key pandemic-relief lending programs at the US Federal Reserve will expire at the end of the year. He further said that the $455 billion allocated to the central bank under the CARES Act must be returned to Congress so that they can be reallocated as grants for smaller companies. The Fed has said it “would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy.”
The development is a negative one for the market which has been hoping for more fiscal and monetary stimulus announcements to shore up the coronavirus-battered economy. Economic indicators have been pointing to a dire situation and amplified the need for fiscal relief amid record spikes in COVID-19 cases in the United States. Mnuchin’s announcement clips the central bank’s capacity to take sweeping steps at a time when the stalemate between the Democrats and the Republicans in Congress continues and delays the stimulus. The move also exposes a rift between the central bank and the government and is a matter of worry for investors as the coordinated effort to combat the pandemic takes a hit.
Data showed last week that initial claims for state unemployment benefits increased more than expected for the week ended November 14. Retail sales in October too grew at their smallest pace since an economic recovery from the coronavirus crash started in May. Consumers purchased motor vehicles at a much slower pace than in previous months and households cut back spending on sporting goods, clothing, and furniture etc.
Weak economic data is likely to worry investors who were starting to build up a nascent recovery hope. As the coronavirus spreads unabatedly in the United States, investors will be worried that more people are likely to be out of jobs and file for unemployment benefits, and limit their discretionary spending. Falling retail sales, surging COVID-19 cases and the resultant shutdowns also dent hopes for investors ahead of the holiday shopping season and posing a threat to the earnings of several major offline retailers, automakers, and hospitality stocks.
Tesla in S&P 500 Soon
The electric-vehicle maker Tesla(TSLA) will be entering the S&P 500 index on December 21 and the news boosted shares of the company to their biggest weekly performance in three months. The stock, which has had a stellar jump in its value this year, rose 21% for the week and pegged its market value to be at a whopping $470 billion.
The stock has been the market’s darling this year, jumping 469% on a year-to-date basis. The news only adds to the frenzy among investors to get a slice of the share and it may well be the case for retail investors too.For those who have parked their money in an S&P 500 index fund, the inclusion is likely to enable them to have some portion in the world’s most valuable automaker through ETFs and index funds. Further, with Elon Musk-helmed aiming to slash battery costs and make prices of its cars affordable, investor interest is likely to increase further.