Great Challenges, Big Dreams

A month chock-full of fireworks and milestones closed on a somewhat muted note, as equities came off records despite more good news on Moderna’s COVID-19 vaccine, which is apparently 100% effective at preventing severe disease.

The company indicated it would immediately request Emergency Use Authorization from the FDA and conditional approval from Europe. The shares soared. The stock’s up sevenfold in 2020, which I guess is what happens when you successfully develop a vaccine against a virus that catalyzed the worst global public health crisis in a century.

The whole month was quite something, really. The S&P was up more than 10%, but it was small-caps and value that really stood out. The Russell 2000 rose nearly 19%, even as Monday’s performance was among the worst since October. US value shares logged their best month on record. And so on.

Read more: A Month To Remember

Monday’s data stateside was a bit underwhelming. Pending home sales fell a second month in October, partly due to the read-through for prices and affordability when the market is as tight as it currently is. The Chicago PMI missed too. This week’s docket features a slate of top-tier prints starting Tuesday.

On the virus front, the news wasn’t good. New York City’s positivity rate rose above 4%, and you’ll apparently need to make an appointment to view the Rockefeller Center Christmas tree this year. Andrew Cuomo warned that the state’s hospitals may soon be overwhelmed again. “Literally every region is dealing with a hospital issue now,” he said, in the course of activating “emergency protocols.” Nationwide, hospitalizations are approaching 100,000.

Obviously, that is an acute situation. If the US continues to move along that trajectory, it’s conceivable that hospitalizations could be double what they were during the peaks in April and July.

Hopefully, things won’t deteriorate to that point, but with the federal response still hamstrung by a paralyzed White House, states are being forced to manage this without the kind of top-down assistance that would be ideal in a crisis. (And that’s a very euphemistic description of the situation — I could be much more abrasive.)

I’m not sure what purpose it serves to continually roll out the same MSCI ACWI chart, but it feels obligatory. One more time: November was the best month in at least 32 years.

For all the action in equities, and despite the myriad warnings that this or that election outcome could have dramatic implications for rates, 10-year US yields ended the month just a few basis points from where they started.

It’s the same story — optimism about a better future-state (where a vaccine is widely available and herd immunity is achieved) is playing tug of war with the rather dour realities of the here and now (as hospitalizations surge with caseloads and analysts fret about a possible double-dip downturn both in Europe and the US).

“Treasurys are in familiar territory as November comes to a close and Cyber Monday promises to provide a unique pandemic gauge of holiday spending as COVID-19 case counts continue to rise,” BMO’s Ian Lyngen and Ben Jeffery said, adding that “in practical terms, there are only three trading weeks left in 2020 and the major Q4 event risks are in the past; a fact that doesn’t bode well for decisive price action between now and the New Year.”

The considerable hurdles to a meaningful virus relief package in the lame duck session also suggest rates could remain rangebound. It’s at least possible that if the Fed doesn’t go ahead with WAM extension next month, the market could feel disappointed, especially given the recent tension between Jerome Powell and Steve Mnuchin. If the virus news worsens concurrently, financial conditions could tighten.

“Following a downgrade of their Q4 and Q1 GDP forecasts, our economists now expect the Fed to increase the weighted average maturity of its Treasury purchases at the December meeting,” Goldman says. “This should help keep longer-term Treasury yields contained over the near-term, supporting our USD short recommendations.”

The dollar had its worst month since July in November, and all eyes are on Janet Yellen who, you’ll note, is now tweeting.

“We face great challenges as a country right now. To recover, we must restore the American dream–a society where each person can rise to their potential and dream even bigger for their children,” she declared Monday. “As Treasury Secretary, I will work every day towards rebuilding that dream for all.”

In her Twitter bio, Yellen describes herself as: “Current nominee for Treasury Secretary. Former Fed Chair. Always an economist.”


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