Stock Market Focus: Virus Versus Economic Growth

The stock market should continue to be  buffeted by fears of more virus-induced shutdowns versus evidence of strong economic growth in Q420.  While election resolutions are moving in the direction of a split government -- a market positive -- some of Biden's advisors have exacerbated the shutdown fears.  With the virus' contagion rising and a window for year-end profit taking opening, there is some downside risk for the market near term.

The latest Claims data suggest the impact of renewed shutdowns or curtailments has been negligible in the aggregate so far.  Initial fell  48k w/w to 709k and Continuing fell 436k to 6.786 Mn -- new lows for the move down.  While it is unlikely they will point to a speedup in November Nonfarm Private Payrolls from the huge +906k m/m in October, they still could open the door for a very strong jobs gain this month.  The Phil Fed ADS Index shows a stabilization in economic growth around an above-trend pace so far in Q420.  These high-frequency indicators will provide early evidence whether the upsurge in Covid infections is denting economic growth.

Even without this evidence, the markets are highly sensitive to the possibility that policymakers will act aggressively to contain the virus by shutting down the economy.  This concern was boosted when some of President-Elect Biden's health advisors argued that a 6-week shutdown at the start of 2021 could stop the spread of the virus,.  They probably contributed to Thursday's market sell-off.  (Ironically, other medical analysts say the virus will peak by itself in January.)  Other Biden health advisors dismissed this extreme position, however, arguing for a more targeted approach to fighting the virus.   Their comments likely helped the market rebound Friday. 

This week's US economic data are expected to underscore strong growth.  Consensus looks for 0.5-0.6% m/m in October Total and Ex Auto Retail Sales, a very decent gain after September's surge.  The Report should capture Amazon's Prime Day (as well as other retailers' heavy discount days).  But, lower prices (as seen in the October CPI) work against Sales.  Consensus looks for a hefty 1.0% m/m rebound in October Industrial Production, after -0.6% in September.  Manufacturing Output is seen up 0.9%, versus -0.3% in September.   October Housing Starts/Permits are expected to rise.  While October Existing Home Sales and November Phil Fed Mfg Index are seen pulling back a bit, the consensus estimates remain at high levels.