The Hot List
1. COVID-19 (last week: #1)
Case numbers continue to break records. Here is a tracker that will keep you up to date.
The Moderna vaccine was approved by the FDA. Now, the first shipments are being delivered. This followed the Pfizer vaccine that rolled out last week where the first Pfizer vaccine shots were given.
There is a new, fast-moving coronavirus strain in England that is raising alarms.
2. Stimulus (last week: #2)
Congress reached a deal Sunday on a long awaited, $900 billion relief package. It would be voted on along with a full-year government spending bill. It will provide direct payments and jobless aid to struggling Americans.
The Fed held their December meeting last week. The left the fed funds rate unchanged at the range of 0 to 0.25%. The Fed said it would maintain aggressive bond purchases until “substantial further progress” on recovery.
3. Unemployment (last week: #3)
Weekly jobless claims jumped as 885,000 filed new unemployment claims. The amount of these claims are still four times higher than they were before the pandemic. Economists are warning that “things are likely to get worse” as containment measures for the pandemic intensify.
The Electoral College voted last week, making the election results official.
The Georgia runoffs are next month to determine who controls the Senate.
5. Cyberattacks (last week: unranked)
There was a massive cyberattack that targeted the U.S. Treasury, homeland security and other agencies. Secretary of State Mike Pompeo and the chairs of the Senate and House intelligence committees have blamed Russia for the hack. They targeted a Texas-based networking tool called, SolarWInds. The extent of the damage is still being discovered but so far 50 organizations have been “genuinely impacted.”
Monday: S&P 500 down 15.97 (-0.44%) to 3647.49. Electoral College makes election official.
Tuesday: S&P up 47.28 (+1.30%) to 3694.77. Stimulus proposal, vaccine optimism.
Wednesday: S&P 500 up 6.55 (+0.18%) to 3701.17. Fed decision announced.
Thursday: S&P 500 up 21.31 (+0.58%) to 3722.48. Weekly jobless claims reported.
Friday: S&P 500 down 13.07 (-0.35%) to 3709.41. Moderna vaccine approved by FDA.
Just when it seemed the S&P had fully broken out above 3700, Friday’s selloff brought the S&P right back to it. Continue to look to at this level as a barometer in the short-term. If the index stays above 3700, it could continue to melt up. However, if it drops below, keep an eye on 3600 as that appears to be a more significant support level.
This market still seems to be riding the sugar high of near-zero interest rates, vaccine headlines, hopes of stimulus and pent-up demand on the other side of this. The setup for stocks still seems great, as there remains to be a real alternative to stocks. However, there is no denying that valuations are getting pretty high out there.
Part of me thinks this rally has plenty of room to run, since The Fed has basically said they are going to let the economy run hot. This means they could let inflation get above 2% before they start raising rates. The other part of me worries that investors who are buying at these levels are likely to get whipsawed. I believe this market has already reacted to the good news, like vaccines. These leaves us with few catalysts to drive equities higher. And now there are a few new potential downside catalysts to add to the list like a new strain of coronavirus and the massive cyberattack from Russia.
The name of the game is to “buy the rumor and sell the news.” If that is going to play out as it has throughout the history of the stock market, it wouldn’t make sense to buy the rumor and also buy the news. That scenario is how you get whipsawed.
This is why you need to have a game plan, because everyone has different time horizons and risk tolerances. Times like this are where your actions really depend on your goals. Some investors may need to buy here because they can’t afford to miss out on another leg higher. Others may not be able to afford another leg lower because they don’t have the time to safely recover any losses.
You need to be prepared for a range of economic outcomes, as I would surely expect some turbulence as we start 2021. I expect the push/pull between high valuations and cash on the sidelines to continue. The areas I’m focusing on at this moment are secular tech, consumer discretionary, financials, and any other name I can find that will benefit from inflation. This should continue to be a stock picker’s market. Just be careful which ones you pick as there is plenty of “froth” out there. If you need help, please contact me at DreamWork Financial Group and let us build your Investing Gameplan™.
Until next time,
Chief Financial Strategist
Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.