E-mini S&P 500 Futures (December): Settled at 3568, up 27.00
E-mini Nasdaq-100 Futures (December): Settled at 11,886, up 267.75
The S&P 500 index is holding ground in positive territory for the week. This is our key takeaway as we head into the back half and a busy economic calendar. Last week was strong, uncertainties were removed. The week before, the S&P 500 won a battle at unchanged for the year. These are constructive feats for the intermediate-term and exude the market’s desire to perform. Unprecedented stimulus measures and a glimmer of light at the end the Covid-19 tunnel have brought bullish tailwinds.
How could this landscape sour? With winter approaching, we could be facing some of the darkest days of the virus. The U.S. has seen a record number of cases for weeks and more than 1 million in the last 10 days. Surges in New York and New Jersey have caused state and local governments to reintroduce restrictions. This alone could encourage some de-risking ahead of the weekend.
We say last week’s election seemingly removed uncertainties because the market has so far ignored noise around President Trump’s election fraud allegations and furthermore, has ignored the Georgia runoff. Strength Sunday night, before the Pfizer news, was the market turning a blind eye and focusing on 2021. Furthermore, the constructive pullback through Tuesday exuded the market’s desire to perform; the S&P 500 held our rare major 4-star support. With those unprecedented stimulus measures sloshing around, markets have looked past the virus all year, planning on future earnings growth. Now, the market is planning for Congressional gridlock. Historically, in the new year following a presidential election, the S&P has vastly outperformed during years of gridlock compared to sweeps. Think about this for a moment; stimulus, a vaccine, gridlock, and bullish momentum, all during a seasonally strong time of year.
Still, within this narrative, we must not ignore several headwinds. First, the type of damage a second wave of Covid-19 could inflict on the economy. How a contested election creates friction within Congress and slows the ability to achieve much needed new fiscal measures. Thirdly, if the Senate flips Democrat due to runoffs. This all ties together. If the U.S. economy is again locked down, the government must provide new stimulus measures. Furthermore, deadlock due to a contested election slows government to a halt; we haven’t heard a whisper on a coronavirus aid bill this week. Lastly, if the Senate flips Democrat, it will reinvigorate the fear of higher taxes, corporate layoffs, and tighter restrictions across many industries, but most importantly Big Tech.
On today’s packed economic calendar, U.S. CPI and Jobless Claims came out at 7:30 a.m. CT. Inflation data brings 2 sides to the coin. On one hand, an uptick will not fret economists because the Federal Reserve will allow inflation to symmetrically run hot above 2%. On the other hand, low inflation could weigh on the market, but also pave the way for the Fed to do more. It is no secret that jobs data has broadly outperformed expectations, the market must continue to see this. At 10:45 a.m. CT, Fed Chair Jerome Powell, European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey will speak at a virtual event. Chicago Fed President Charles Evans speaks at noon CT, he is a 2021 voter. There is a 30-year U.S. Treasury Bond auction, also at noon CT.
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