Traders work on the floor of the New York Stock Exchange.
Stimulants to help the economy and vaccines to stop the virus should be the main focus of the markets in the coming week.
Efforts to push forward a tax package in Congress gained momentum last week, with congressional leaders appearing conciliatory and a bipartisan group of senators pushing their own $ 900 billion proposal.
“It probably comes down to how much [Senate Majority Leader] Mitch McConnell is up for the deal, and I don’t know what the answer is to that, “said Mike Schumacher, head of rate strategy at Wells Fargo.” If that is to happen, next week is the week. The government ran out of cash on Friday. Congress must come up with a financing plan. ”
Strategists said the two events could be linked, but Congress could also pass a spending resolution without including any stimulus. Some programs will expire at the end of the month if Congress does not provide funding, including unemployment benefits for millions of Americans.
The on again, off again stimulus talks have led to skepticism in the market, and set it up for a higher move if there is anything officially announced. “I don’t think it’s fully integrated. I would say the stimulus is a positive catalyst, unless it’s less than $ 900 billion,” said Art Hogan, chief market strategist at National Securities.
As stocks surged last week, bond yields rose as well. Yields move opposite to prices, and bond yields have risen on stimulus expectations. More spending means more debt, and that pushes up rates.
The 10-year was at 0.97% on Friday and looked set to return to the 1% level for the first time since March.
“Is that the case here, the stimulus is already being taken into account, and are people going to take their money and run?” said Schumacher.
The S&P 500 gained 1.7% last week, ending Friday at a record 3,699. The Dow Jones also finished up 1% to a record 30,218, and the Nasdaq gained 2.1% to a record 12,464.
Vaccine news has been a catalyst for the surge in the market since early November, when Pfizer first revealed the high efficacy of its vaccine. Since then, Moderna and Astra-Zeneca have both revealed the results of their own vaccines.
A Food and Drug Administration advisory committee is meeting Thursday on the emergency use authorization of the Pfizer and BioNTech vaccine.
“They’re starting to roll it out in the UK, and it’s something that’s going to be watched here to see how it plays out,” said Quincy Krosby, chief market strategist Prudential Financial. “This is the next problem for the market. The deliveries, the distributions. Are people getting tricked? These are all issues that the market is concerned about as they are anxious for this to go smoothly in the United States.”
About 3 million people will be vaccinated during the initial deployment. Moderna’s vaccine is expected to be approved the following week, and by the end of the year, both vaccines are expected to reach 20 million people in the United States.
“The vaccine news started to see a bit of a diminishing return in terms of the wow factor,” Hogan said. “There is going to be some volatility around logistics.”
Krosby said the virus remains at the forefront of the market due to the continued spread and its economic impact when operations are closed. California announced new restrictions on Thursday with stay-at-home notices in some areas.
“The big question is how long does the Covid surge last?” Krosby said.
Virus shutdowns appear to be behind a slowdown in the job market, and economists say it could slow activity in the first quarter. Job growth of 245,000 in November was about 200,000 lower than expected. This makes Thursday’s weekly jobless claims more important to the markets.
There is also CPI and PPI inflation data on Thursday and Friday.
“There’s this push in the market when it comes to inflationary pressures,” Krosby said. “It’s not expected, which is why if it prints higher, it could ignite the conversation about inflation.”
Calendar for the upcoming week
3:00 p.m. Consumer credit
6:00 am NFIB survey
8:30 am Productivity and costs
10:00 a.m. Wholesale
10 a.m. JOLTS
8:30 a.m. Initial jobless claims
8:30 a.m. CPI
10:00 a.m. QSS
2:00 p.m. Federal Budget
8:30 am PPI
10:00 a.m. Consumer sentiment
12:40 p.m. Vice President of the Fed Randal Quarles