Stock Market Vaccinated Against Georgia Elections and Soft Data?

Expectations of an increasing pace in anti-Covid vaccinations may very well protect the stock market from a Democratic sweep of the Georgia run-off Senatorial elections on January 5.  A knee-jerk drop in stocks may quickly be viewed as temporary and thus a buying opportunity.  While Democratic control of the Senate would raise the risk of economy-/market-unfriendly legislation during the Biden Administration, this risk could be pushed to the back-burner in the belief that it will take some time for this to happen.  In the near term, this risk could be superseded by expectations of a snap-back in economic activity as the pace of vaccinations gains traction and the likelihood of additional fiscal stimulus. 

These expectations also should inoculate the market against any weakness in upcoming US economic data, since the latter would be seen as temporary.   In addition, soft data will reinforce expectations of continuing easy monetary policy.  A softening in key data is the risk this week:

Consensus looks for a dip in the December Mfg ISM to 56.5 from 57.5 in November (noting, however, that this year's data will be revised to reflect new seasonal factors).  Some evidence, like the Phil Fed and NY Empire State Mfg Surveys, suggest an even larger decline.  

Consensus sees a sharp slowdown in Payrolls to +100k m/m (+105k Private) in December from +245k (+344k Private) in November.  (Census workers should subtract about 3k from government jobs after subtracting 93k in November.)  Although the Claims data support the idea of a slowdown in December Payrolls, they don't rule out a larger Payroll increase than the consensus estimate -- and, indeed, that is the risk.

Note that the impact of the virus -- via shift to on-line from in-store purchases -- could be seen in a large decline in Retail Jobs and a jump in Couriers (as in November).  If so, they could be reversed in January and February when seasonals look to offset the elimination of holiday-related jobs.

The consensus estimate of an uptick in the Unemployment to 6.8% from 6.7% in November looks too weak, as the Claims data suggest another decline in the Rate.  All the data in the Household Survey will be revised to reflect new seasonals in this Report.  Typically, this revision does not affect the Unemployment Rate.