Equity market momentum stalled somewhat with the S&P 500 recordings negative numbers for the first time in three weeks. The S&P finished down -0.9% while the tech-heavy NASDAQ was slightly higher but still negative at -0.7%. In what is now becoming a painstakingly repetitive yet no less relevant narrative, market participants continue to balance optimism and uncertainty. Delays over a new fiscal stimulus package and surging coronavirus infections dented sentiment even as regulators moved toward emergency use authorization of a COVID-19 vaccine.
In Europe, A fresh serving of quantitative easing was announced. The European Central Bank announced an additional $605 billion of support through the purchase of Eurozone Bonds.
With a name like ‘quantitative easing, it’s not surprising that most investors tend to nod-off whenever the subject gets mentioned, but it continues to play an important supportive role for financial markets and the economy as a whole. Put simply, when central banks buy lots of bonds, it pushes their prices of those bonds up and yields – which investors use to determine interest rates on new loans – down. So by upping the amount of bonds being purchased, central banks effectively promise businesses and governments to keep those rates low. That low cost of borrowing should, in theory, encourage them to take out loans, spend money, and help kick-start the economy. But, of course, like most things in life, it’s not quite as simple as that. Its effectiveness in getting support to those in the economy who need it most is still a hotly contested issue in economic and political circles. For now, the supportive stance of the ECB is a positive for investors.
In the U.K., to the surprise of literally nobody, the deadline for Brexit talks passed without a deal, and without the end of talks. Both parties have now agreed to “go the extra mile”, raising faint hopes that a deal can be done despite the significant question marks that still surround the deal.
With positive vaccine news pushing the S&P 500 up 13% since October 30th, a relative loss of momentum was somewhat inevitable, with partial pullbacks all part of regular market functions.
Since the vaccine announcement, the sector rotation has continued with value and small-cap regaining some ground in recent weeks.
The U.S dollar ended three straight weeks of declines. Brexit worries and the more imminent Covid battles prevented investors from reaching for riskier currencies for now.
0.89%US 10Y TREASURY YIELD
U.S. Treasury yields slipped back somewhat after substantial movements towards 1% in recent week. Safe-haven assets such as the 10 Year Treasury saw prices rally in response to the new lockdown measures amid the worsening COVID-19 pandemic.
Oil prices recorded a sixth week of gains. Geopolitical concerns over the weekend are likely to support higher oil prices over the coming week. A tanker unloading in Saudi Arabia was struck by an explosion from an unidentified source sparking fresh concerns on how the regional conflict will affect future supply.
The much anticipated first batch of Pfizer Inc-BioNTech vaccines is scheduled to arrive in the U.S. on Monday morning. Experts expect 40 million doses to be available by the end of the month if Moderna Inc’s vaccine gets the emergency-use authorization later this week.
The recent news around the vaccines is positive, no arguments here, but there is no denying the road ahead is still paved with uncertainty. Immunizing the globe is a logistical nightmare of epic proportions and is still very much in its infancy, so market volatility is expected. Proceed with cautious optimism.