The Dow and S&P 500 remain heavy as mounting concerns grow over President-elect Biden’s transition, the end of robust US economic data, and as large parts of the economy brace for shutdowns. The stay-at-home trade is back and boosting the Nasdaq again. While it seems extremely likely that President Trump will be able to flip a few states and become re-elected, he is not going to allow the Biden administration access to funding and office space. The weeks leading up to Inauguration Day are critical for Biden setting up shop and coordinating his COVID-19 vaccination plan. Trump’s last several weeks could lead to instability in some parts of the world and Biden still has no access to intelligence briefings. Biden already has an uphill battle with the Senate on fiscal support, but an ineffective first couple of months will disrupt his agenda only weigh down equities.
A surprise increase with initial jobless claims should remind Congress that the labor market recovery is very vulnerable and at a critical juncture as mounting lockdowns will force many businesses to close. Over 20 million Americans are still receiving some type of benefits, and with the lockdowns just starting to take place, the labor market should be prepared for that number to trend higher over the next several weeks. Congress will act once jobless claims start showing significant increases across the hardest-hit states.
The Philly Fed index did not take a queue from the Empire State survey. Business activity still looks encouraging and despite the softness with new orders, it was a good report. The Philly Fed Survey did not decline as much as feared as strong consumer demand persisted.
Existing Home Sales
The housing sector continues to be the best part of the economy. Existing home sales surged 15.5% in October, close to the best level in 15-years. Escape NY and other metropolitan areas along with low borrowing costs continue to drive strong demand. The housing sector has been amazing, but this could be the top for the recovery now that many Americans grow confident pre-pandemic life will be back in 2021.
Oil prices are weighed down from a strong dollar that stemmed from mounting COVID lockdowns and oversupply concerns grew after the UAE raised doubts that the OPEC+ meeting in two weeks will not be easy. In addition to the UAE resistance for delaying production output increases, Libya’s output continues to increase sharply. All the vaccine optimism is bullish for oil prices in 2021, but the current situation will cap WTI crude until the virus spread in the US peaks, which might not be until mid-December
Gold prices declined for a third consecutive day as the dollar staged a comeback. Lockdowns will be the theme in the US throughout the holiday season and that will drive a modest rally for the greenback. Gold has softened towards the lower boundaries of its recent trading range and could be vulnerable of a break of the $1850 level if the dollar continues to rebound. Gold’s weakness should be short-lived, but if bearish momentum persists, the $1800 level should prove very attractive for long-term investors.
Gold’s longer-term bullish remains intact as unprecedented stimulus will still have a debasement effect on the dollar and once the global recovery accelerates inflationary pressures will arise. Gold demand should also improve from Asia and that should provide underlying support throughout the holidays.