Fears of Virus, But...

The stock market will likely continue to be restrained by fears of renewed virus-induced shutdowns in the next few weeks.  These fears risk being underscored by some pullback in upcoming key US economic data.  But, there are reasons to think a market retrenchment will be modest.  The next round of data pullbacks are not likely to be sharp, with their levels still signaling above-trend growth.  And, the likelihood of FDA approval for emergency use of two vaccines should continue to serve as a backstop. for the market.  On the political front, Trump's attempts to reverse the election results should soon come to an end.  More importantly, news reports suggest that Biden will pick a moderate for Treasury Secretary.  Both would be stock market positives. 

Early evidence points to some softening in two upcoming economic data -- November Mfg ISM and Nonfarm Payrolls, both due in the first week of December.  Two regional manufacturing surveys -- NY Empire and Phil Fed -- both slipped in November.  But, they stayed at relatively high levels.  The Claims data point to a slowdown in Private Payrolls after December's surge.  But, the Claims data also suggest a further decline in the Unemployment Rate, which would signal above-trend growth.

Data released so far point to strong Q420 Real GDP Growth.  The Atlanta Fed model's current estimate is 5.6% (q/q, saar).  In contrast, one of the weakest forecasts on the Street  -- by JP Morgan economists -- is for 2.8% in Q420 and -1.0% in Q121, due to virus-induced shutdowns and lack of near-term fiscal stimulus.   For this forecast to be realized requires a sharp slowdown in economic activity from the 2nd half of November into early next year.  The earliest evidence should be Initial Unemployment Claims.  While Initial rose in the latest report, it is too soon to say the increase resulted from virus-induced shutdowns.  It could have been just a partial offset to the prior week's drop -- in other words, just noise.  The level is still the second lowest for the move down.  But, the Claims data will be important to monitor.

Besides Claims, this week's releases of some November surveys could offer clues on whether or by how much the economy is slowing.  Consensus looks for the Markit Mfg PMI and Services PMI to edge down, but not be enough to signal a sharp weakening in growth.  This week's other important data are for October -- Durable Goods Orders and Personal Income/Consumer Spending.  All are expected to post gains.  Retail Sales already were up in October.  And, the New Orders components of manufacturing surveys were strong for this month.  But, some of the components of Durable Goods Orders appeared to be overly high in August and September and risk unwinding.  So, there is some downside risk to the consensus estimate of October Durable Goods Orders (+1.0% m/m Total, +0.4% Ex Transportation).