US stocks are finishing off a disappointing week on a down note after Washington DC wasn’t able to yield any progress on COVID aid talks, Brexit drags on, coronavirus daily deaths post some of the deadliest days in American history, and on some downbeat coronavirus vaccine news. News that New York City will close all in-door dining extended the decline with stocks. It seems we could have a couple months of tough lockdowns for businesses and that will probably temporarily disrupt the cyclical rotation trade.
Stimulus
Despite all the warning signs for the labor market, over 13-million Americans might see emergency aid go away at the end of the year because Congress can’t break the stimulus stalemate. Senate Majority Leader McConnell is becoming the Grinch, after failing to make any meaningful concessions to Democrats after they’ve come down on their stimulus price tag. McConnell is not budging on liability protections and remains resistant on providing aid to state and local governments. This week was supposed to deliver a breakthrough in negotiations and not have talks get pushed into next week. Despite this week’s setback in negotiations, tens of thousands of Georgians are hoping they don’t see federal benefits expire at the end of the year. McConnell will not want to take a chance in motivating Georgians to vote against both Republican Senators at the January 5th Senate runoff races. Wall Street still expects something to get done, but that confidence is fading after each day that passes.
Vaccine
Much of the focus this week was on Pfizer’s painstakingly long EUA approval, which was widely expected to get the greenlight. It is not just about vaccine approval, but also vaccine execution. Supply disruptions and vaccine rollout will play an important role as both the US and Europe grapple with the current wave of the virus. Pfizer’s allotment is getting some scrutiny as the US government is looking to make sure that people have both shots secured from the first round of production, instead of immunizing more people and relying on Pfizer to create more vaccines before people need their second dose.
GSK/Sanofi
Too much optimism has been priced in for vaccine rollout and if we see further delays like we have with GSK/Sanofi, that could start to weigh on the snapback trade that is heavily priced in for early next year. The failure to deliver a strong immune response in older people will likely mean the GSK/Sanofi vaccine won’t get approved till later next year. Delays with other vaccines and supply chain constraints could provide further headwinds in the short-term and push back calls for a return to pre-pandemic life.
Brexit
Another Brexit deadline is approaching and with both sides are warning a no-deal Brexit could happen at the end of the year. It seems pound traders have seen this movie before and expect them to kick the can down the road. Both sides would be better off to agree on a temporary agreement to extend the transition than to allow a no-deal Brexit. Brexit hedges are in place for many but even if we see a temporary deal in place, some traders are looking to fade any rally.