The Week Ahead – Thanksgiving Virtually

Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.

Thanksgiving is going to be different this year. Like many families, we decided it would be safer to celebrate Thanksgiving by staying home and seeing loved ones on FaceTime. With COVID-19 cases spiking, even outdoors felt a little too unsafe given our parents’ age and the potential for serious health issues. We will be enjoying the holiday 2020 style, by using the technologies that have allowed us to work, shop, matriculate, and even socialize from a distance.

While the infection rates are rising sharply, markets have been well behaving because there are a number of supportive factors that have created a positive backdrop.

Election uncertainty mitigated

While there remain some legal challenges and an important Senate vote in the great state of Georgia, the odds of a Biden White House and split congress are very high. A divided government will mean that a progressive agenda that includes a potentially inflationary fiscal stimulus, along with significantly higher taxes, is probably off the table.

Strong economic momentum

We just clocked the fastest economic growth since 1874 at an annualized rate of 33.1%. The latest economic forecast for fourth quarter GDP growth is 5.6% using the Federal Reserve’s GDPNow model. With interest rates remaining low, saving rates high, ultra-low inventories, surging corporate earnings (recovering 80%), and consumer net worth up $10 trillion this year (housing and stock market gains); the economy should be able to weather the coming weakness due to partial lockdowns. The economy just needs a bridge to get us to wide distribution of the vaccines in the first half of 2021. Hopefully, Congress can deliver some relief by yearend in the form of additional targeted fiscal stimulus.

Human ingenuity

The vaccines have arrived, and it turns out they work really well. Scientific studies indicate that the Pfizer/BioNTech vaccine is 95% effective, and is being fast-tracked using an emergency use authorization. In addition, Moderna’s version of its COVID-19 vaccine showed that it is 94.5% efficacious. Moreover, the Moderna vaccine does not have to be stored at -70 degree Celsius; normal refrigeration will do. That will greatly help with distribution logistics. Surveys are showing a sharp increase in willingness of people to take the vaccine given how well they reportedly work. Before the news on these vaccines, only ~50% of people said they would be willing to be inoculated; however, the latest number has risen to 82%. The combination of 95% efficacy and high levels of uptake should allow us to talk about COVID-19 in the past tense by this fall.

This week, we will get some interesting housing data. Both the Case-Shiller national home price index and the new home sales statistic are likely to continue to show tremendous strength. The unprecedented surge in existing house sales will unleash many other purchases: appliances, furniture, furnishings, landscaping, electrical, painting, etc., creating a powerful feedback loop.

As we grapple with the fallout from the worsening pandemic, it is important to remember that this too shall pass. There are certainly a lot of negatives to worry about in the next few months, but we are so close to getting through these dark times – dawn is coming.

Data deck for November 23–November 27: