Equities and COVID-19 cases touch new highs

Prior week summary

Despite rapidly rising COVID-19 cases across the country, the major U.S. equity indices marched higher for the second consecutive week with the Dow Jones Industrial Average posting the best monthly performance since 1987, as vaccine optimism and stimulus bill hope dominated headlines and improved investor sentiment. COVID-19 cases continued to rise at an accelerated pace last week with the total number of cases in the U.S. sitting just above 15.1 million cases, approximately 22.5% of the global tally. The U.S. set multiple daily case count records in the last week with over 227,800 cases reported on Friday alone. The latest surge in cases has pushed the daily case count seven-day average above 191,000 and the average daily death toll above 2,170. Hospitalizations have also seen record numbers with over 100,000 individuals in the U.S. currently hospitalized with COVID-19. The surge in cases over the last month has prompted many state and local governments to implement restrictions on movement and activity and last week was no exception. Notably, many counties in southern and central California entered a new phase of restrictions after the intensive-care capacity dipped below 15% in many counties this weekend. The new restrictions order the closure of many non-essential businesses, limit store capacity of essential businesses to 20%, and require masks to be worn outdoors. Speaking on Thursday to reporters after announcing the restrictions that would be enacted should intensive-care capacity dip below 15%, California Governor Gavin Newsom said, “If we don’t act now our hospital system will be overwhelmed. If we don’t act now we’ll continue to see our death rate climb.”

With cases mounting across the U.S. and Europe, market participants rejoiced on Tuesday when Pfizer announced that they asked European Union regulators to authorize their prospective vaccine for emergency use. Investor sentiment continued to improve on Wednesday when the U.K. approved Pfizer’s new vaccine for emergency use and revealed plans to begin inoculations as early as the following week. To the dismay of many market participants, Pfizer announced on Thursday that they were halving their 2020 expectation for vaccine distribution to 50 million doses, enough to inoculate 25 million people. Vaccine optimism continued to reach new heights over the weekend after the Food and Drug Administration (FDA) announced that they will evaluate Pfizer’s Emergency Use Authorization (EUA) request on December 10 and Moderna’s EUA request on December 17. The timeline for the FDA’s evaluations opens the possibility that distribution and immunizations could begin in the U.S. by year-end. Speaking to ABC News on Sunday, Health and Human Services Secretary Alex Azar said, “If things are on track, the advisory committee goes well, I believe we could see FDA authorization within days,” and noted, “By the second quarter of next year, we’ll have enough vaccine for every American that wants it.”

Market participants were the beneficiaries of a deluge of economic data releases last week that largely suggested a mixed U.S. recovery. The ISM Manufacturing Index posted a 57.5 level, below both analyst expectations and October’s 59.3 reading. While the reading has dropped from the breakout level seen in October, the latest reading remains well within expansionary territory. Construction spending rose 1.3% in October, above analyst calls for a 1% increase. The September reading saw a sizeable downward revision, however, posting a 0.3% decline, down from an originally reported 0.5% gain. 712,000 individuals filed for unemployment in the last week, with the total number falling for the first time in three weeks. While the fall in new claims is a welcomed development, analysts warn that the absolute level of claims is still far higher than any level seen in the country prior to the pandemic and that the week over week downward trend in new claims can be partially attributed to the Thanksgiving holiday. Continuing claims moved lower last week with 5.52 million individuals continuing to receive unemployment, down from 6.09 million individuals the week prior. All eyes were on Friday’s release of the November non-farm payroll report. The report indicated that the U.S. economy added 245,000 jobs in November, well below both analyst calls for 432,000 job additions and October’s 610,000 additions. The unemployment rate fell to a pandemic-low 6.7%, but analysts caution that much of the drop can be attributed to individuals leaving the labor force.

The look forward

After two busy weeks of economic data releases, market participants are looking forward to a lighter economic calendar with updated figures on wholesale inventories, jobless claims, the Consumer Price Index, and the Producer Price Index, set for release.

Rates snapshot

Market implied policy path (Overnight indexed swap rates)