The Best and Worst of Times

by Shawn Narancich, CFA
Executive Vice of Research

A Tale of Two Cities

The blight of COVID-19 resulted in unfortunate milestones this week – record hospitalizations, ICU stays and most sobering, a single-day high in fatalities from the infection here in the U.S. The pandemic’s human tragedy is also continuing to have an economic impact on those industries most-directly impacted by social distancing measures and targeted business restrictions intended to mitigate infection rates. Non-essential retailers, restaurants, hotels and airlines continue to bear the greatest burden. Despite a sobering backdrop that included a monthly jobs report this week that missed expectations, stocks are continuing to defy the worst headlines of today’s world in favor of what looks to be a much better 2021.

The Cavalry Is on Its Way

Two key factors are driving tailwinds for the economy: stimulative monetary policy, which is advancing the housing market, and the good news on COVID-19 vaccine efficacy — we expect an FDA advisory panel meeting next week to recommend approval of the first U.S.-developed vaccine to ward off the scourge. The same panel considering Pfizer / BioNTech’s messenger RNA vaccine will consider Moderna’s similarly designed vaccine candidate the week after next.

Once emergency use authorization is granted by the FDA, doctors, nurses and the most immediately vulnerable populations should begin to receive shots before year-end. The key takeaway for humanity and investors writ large is that production will likely ramp up to create billions of additional doses to inoculate the broader population next year. While the distribution logistics will challenge the supply chain, we are confident that the vaccine seeds are being successfully sown to put COVID-19 in the rearview mirror. Accordingly, we expect labor markets in the most negatively impacted travel and leisure industries to heal as people begin living life the way we knew it before 2020. Economic recovery should endure, and we anticipate a continuing healthy rebound in corporate profits.

E-Commerce to the Rescue

The November jobs reports undershot expectations in part because of incremental job losses at bricks-and-mortar retailers, as well as temporary census employees completing their 2020 surveys. Nevertheless, the increasing demand for e-commerce was a key tailwind helping drive positive net job gains of 245,000 last month - consumers trying to avoid crowded malls are turning to Amazon and the websites of omni-channel retailers to fulfill their Christmas shopping lists. The demand for delivery drivers and warehouse labor has never been stronger, and we express our thanks to these folks working long hours to ensure that the holidays and their gift-giving traditions defy the challenges of COVID-19.

An Added Nudge

A weaker-than-expected jobs report puts added pressure on lawmakers in Congress to bridge their differences and pass targeted stimulus to help those people still out of work, while also helping their would-be employers still suffering from pandemic-related business losses. Whether it is passed in the current lame-duck session or after January’s presidential inauguration, we believe that additional fiscal stimulus is forthcoming.

Week in Review and Our Takeaways from the Week:

  • Stocks set new highs this week and value shares continued to outperform

  • Targeted measures to mitigate CoOVID-19 infections are slowing the labor market recovery at year-end

Disclosures