S&P 500 at risk amid worst jobs deterioration in months

12 Ara 2020

The jobs numbers this week were pretty bad. In both absolute and percentage terms, Thursday's 20% uptick in initial jobless claims was the largest week-over-week increase since March 23, early in the pandemic. The uptick in continued claims was the largest since July 13.

The jobs deterioration comes as Covid-19 case numbers in the US continued to worsen this week. TSA traveler throughput has fallen off somewhat in early December as case counts rise. And to throw in an additional economic risk, Democrats and Republicans in Congress remain deadlocked over what should be in a new stimulus bill.

The one saving grace for this market is that the vaccine rollout begins next week. Hopefully rollout will proceed quickly and case numbers will begin to fall off. Still, I think the market is in a risky place, and we could see a sharp selloff if stimulus negotiations entirely break down. This might be a good place to hedge a bit or sell a little to reduce long exposure to stocks.

16 Ara 2020

Not

Some updates. It looks like a Brexit deal will finally be signed, which is arguably good for US markets in a roundabout sort of way. US election appears to be resolved without serious unrest, and vaccine rollout is proceeding. However, economic data continue to deteriorate. "Retail Sales Plunge More Than Expected in November" is today's headline from The Street, and Markit Services PMI was down significantly month-over-month in December. Stocks are so far holding steady on hope that the data downturn will be short-lived.

17 Ara 2020

Not

Another miss on jobless claims today, plus a large drop in Philadelphia Fed manufacturing index. S&P 500 is up, however, on optimistic stimulus headlines and Fed promises of future QE.

21 Ara 2020

Not

Market risks have been accumulating, and today's sharp downturn suggests that traders are finally pricing in some of those risks. For instance:

1) Trump raised the possibility of a military coup in meetings with advisors. If he attempts it, it could be economically disruptive.
2) Valuations are high, at least by most traditional measures. (Some, including CAPE creator Robert Shiller, say that historically low interest rates change the calculation.)
3) The virus has mutated in Britain to become more contagious, and the UK is being locked down.
4) A Brexit deal has failed to materialize, and no-deal Brexit draws closer.
5) Lack of financial support for state and local governments in the stimulus deal makes state and local tax hikes likely in 2021.
6) Eviction moratorium was extended for only one month and expires at end of January.
7) Unemployment extension in the deal was shorter than expected and expires in mid-March.
8) NIH is investigating rare allergic reactions to Pfizer vaccine.

Of these, I think numbers 3, 6, and 7 explain today's downturn.

27 Ara 2020

Not

The S&P 500 put-call ratio has reached its highest level since 2014.