Psychologically Speaking

US equities snapped a four-day losing streak Tuesday on stimulus optimism.

At this point, market participants have waited — checks watch — almost five months for Democrats and Republicans to decide how much to spend and what to spend it on.

While frustrating for investors and at times maddening for traders (and those are two different classes of market participants, by the way, or at least they used to be), the delay was an economic death knell for untold numbers of beleaguered Americans. Indeed, it’s probably not a stretch to say that lives were lost both directly and indirectly as a result of what can only be described as a total breakdown of the legislative process in Washington.

Leaders from both parties met on Tuesday afternoon to hammer out the details and debate which version of the stimulus package to pass. There were just three days to go before a broader spending deal needed to be inked, although Mitch McConnell pledged not to leave for the year without a relief package. He again suggested delaying a decision on state aid, while Chuck Schumer said he still wants funding for local governments.

Ambiguity remained around whether Nancy Pelosi, Schumer, or McConnell supported passage of the “core” bipartisan plan, which carried a price tag of $748 billion. As a reminder for anyone not keeping track of this hopelessly convoluted charade, there were two main proposals, one from Steve Mnuchin and one from a bipartisan group of lawmakers. The latter was split in two on Monday in a bid to facilitate negotiations. But the larger of the two slices was disagreeable both to McConnell and Pelosi, only for different reasons.

For their part, investors and traders seemed convinced that a compromise would come together and that bolstered equities, which managed their best session since late last month.

At the risk of trivializing the bond market which, as a rule, is always more important than stocks, there’s little utility in documenting the low-volume action in rates on a day ahead of a Fed meeting where policymakers may adopt outcome-based forward guidance for QE.

Moderna’s COVID vaccine continued to make its way through the regulatory process in the US. FDA staff said the company’s shot was 86.4% effective in patients over 65 and nearly 96% effective in people 18 to 65. Notably, the linked documents reveal “three reports of facial paralysis (Bell’s palsy) in the vaccine group and one in the placebo group.” Whether that’s something to be concerned about is an open question. “Currently available information is insufficient to determine a causal relationship with the vaccine,” the briefing documents said.

By the end of the year, the world’s largest economy will likely have vaccinated around 20 million people. In the meantime, the situation is dire. On the CDC’s count, the 7-day moving average for new cases stateside is more than 213,000. The seven-day moving average for deaths is almost 2,500. The latest count on national hospitalizations was 110,549 from the COVID Tracking Project.

While it’s obviously true that European nations and large emerging markets have also struggled to contain the virus in its second wave, what you’ll note from a chart of daily cases in the US is that America never made it out of the first wave. In fact, it’s just been one, long tsunami since April.

On Monday, both Andrew Cuomo and Bill de Blasio warned on stricter measures for New York as hospitalizations spiked. The state recorded 128 deaths over 24 hours, Cuomo said Tuesday. Nearly 6,000 people are now hospitalized in the state. De Blasio suggested a full shutdown for New York City is likely just after Christmas. “With good luck and hard work we could be out of that in a matter of weeks,” he added.

I suppose this goes without saying, but it’s highly questionable whether any stimulus Congress finally decides to deliver will have a material impact at this juncture. And that underscores the difficulty in covering this debacle. On one hand, any aid is welcome at the individual level. It would be cruel to suggest otherwise. Someone who can’t pay rent will take whatever they can get whenever they can get it. But in the aggregate, $750 billion (if that’s what it turns out to be) in narrowly construed federal assistance delivered on what, by the time it gets into the economy, will be a six-month delay from when provisions associated with the last stimulus plan began to lapse, is woefully inadequate.

In all likelihood, that inadequacy will manifest in disconcerting data in the months ahead, and perhaps in a shallow, double-dip recession.

The easy way out, psychologically speaking, for those fortunate enough not to be affected, is to cheer the stimulus, the vaccine, and the promise of a more predictable executive branch in 2021. But by the time all of those factors coalesce to bring about materially and sustainably better outcomes both from a public health and economic perspective, it’s possible that almost a half-million Americans will be dead.

Like the deceased, tens of thousands of small businesses which closed during the pandemic won’t be coming back, no matter how successful the vaccine rollout and no matter how competent Janet Yellen turns out to be in her capacity as the nation’s first “Technocratic Caretaker of the Union.”