US equities struggled Friday as the Trump administration introduced fresh uncertainty into an already fraught macro environment.
The Commerce department’s move to effectively shut down WeChat in the US and freeze TikTok from Sunday, turned the dial up on the Sino-US tech war and raised questions about what many believed was a done deal between ByteDance and Oracle. The new prohibitions served as a rather stark reminder that nothing is ever certain when it comes to dealing with the current occupant of the Oval Office. Amusingly, iPhone downloads of WeChat surged in the wake of the new decree.
Trump is famously proud of his unpredictability, and while there is some evidence to support the notion that being mercurial is an asset, it can also be a liability, something market participants know all too well. Indeed, the last time the Nasdaq 100 fell for three consecutive weeks was during August of last year when Trump abruptly broke the Osaka trade truce with Xi Jinping, pushing the world’s two largest economies to the brink of an all-out trade war.
There was little in the way of news to suggest the fiscal stalemate in Washington is nearing an end. Nancy Pelosi hinted at possible changes to Democratic demands on Friday, emphasizing the necessity of assisting airlines and restaurants, but she seems dug in on the price tag. $2.2 trillion remains Democrats’ official final offer. Many Senate Republicans are equally stubborn on the other side, with some suggesting that no additional stimulus should be delivered.
Still, with Trump vocally in favor of a bipartisan compromise deal sporting a $1.5 trillion price tag, the door is at least cracked. Pelosi continues to insist that aid for state and local governments is a must and, in a somewhat ominous remark, said “something is not necessarily better than nothing” when it comes to aid. “When they come to the table” it will get done, Pelosi said, referencing the GOP.
Separately, lawmakers are still on track to pass a stopgap funding bill that will prevent a government shutdown.
The curve was essentially unchanged on the week, as the Fed meeting didn’t manage to generate much in the way of fireworks, other than the downside bias in equities triggered by Jerome Powell’s somewhat dour economic assessment and “failure” to convey an inclination for even more asset purchases on top of the existing $120 billion/month run rate.
“In the week ahead, the fundamental inputs will take a back seat to developments on the two major event risks left in 2020; the election and progress toward a vaccine’s implications for the path of the pandemic”, BMO’s Ian Lyngen, Jon Hill, and Ben Jeffery said, in a Friday afternoon note.
“While there aren’t specific known updates or revelations on either risk, the market’s collective expectations continue to be refined as the events near [even as] neither are associated with specific hard dates unless the election results are an uncontestable landslide”, they went on to say, adding that “as a result, the latent uncertainties will persist and in doing so contribute to the resilience of the trading range” in US rates.
Note that the assumption across desks is now that the results of the election will not be known on election night. How that is at all reconcilable with equities trading the most expensive in two decades is anyone’s guess.
I suppose you can simply fall back on TINA and liquidity provision, but it’s a long way down from here — even after this month’s mini-correction. And that’s to say nothing of the distinct possibility that earnings estimates for 2021 turn out to be too optimistic.
Both the S&P and the Nasdaq closed below their 50-day moving averages. Crude managed a gain for the week.
“At this point, monetary policy is not the most decisive factor”, Deutsche Bank’s Aleksandar Kocic said. “In its current form, it is likely to stay in place with possibly slight adjustments, and remain reactive to fiscal policy, which together with advances in vaccine developments, should remain the main drivers that would shape/influence the economy”.
“It is interesting that… investors have been dumping stocks. Some might tell you that the FOMC meeting failed to live up to lofty bullish expectations, but I would argue that stocks are trading on their own prospects and that the Fed does not play prominently in that equation”, former head of equity derivatives at RBC Kevin Muir remarked, in a note called “Forget The Fed”.
“All of this Fed-tea-leaves reading is interesting, but the market is overreacting to the importance of Fed policy. They aren’t the main player anymore”, Kevin added.
Consumer sentiment unexpectedly hit a six-month high in the preliminary print on The University of Michigan’s gauge for September. That sounds better than it is. The index is still bumping along in the same depressed range it’s been mired in since the onset of the pandemic.
“Over the next several months, there are two factors that could cause volatile shifts and steep losses in consumer confidence: how the election is decided and the delays in obtaining vaccinations”, the survey’s chief economist Richard Curtin said, adding that “while the end of the recession will depend on these non-economic factors, the hardships endured by consumers can only be offset by renewed federal relief payments”.
Hopefully, you’re getting the message. If not, here it is in three words: FISCAL, FISCAL, FISCAL.
On Friday afternoon, during a press conference convened for no readily apparent reason, Trump claimed there will be enough coronavirus vaccines for every American by April.
“I think distribution will go even quicker than most people think”, he said, at The White House. “In a short time, we will have a safe and effective vaccine and we will defeat the virus”.
Fingers crossed. Because so far, the virus is defeating us. As of Friday afternoon, 198,000 Americans had died of COVID-19.
The country is closing in on Civil War numbers, which seems tragically apt considering how polarized the nation is around issues of race and all manner of other societal inequities.
I suppose all we can do is hope (and pray) that the virus gets “tired of winning”.