- S&P 500 index settles back as some vaccine realism sinks in
- Markets await Congressional fiscal action during lame-duck session
S&P 500 index settles back as some vaccine realism sinks in — The S&P 500 index on Tuesday settled back after Monday’s sharp rally on the news of 90% efficacy for Pfizer’s vaccine. The S&P 500 index on Tuesday closed mildly lower by -0.14%, giving back a little of Monday’s +1.17% rally to a new record high. Meanwhile, the Nasdaq 100 index on Tuesday fell by -1.74%, adding to Monday’s sharp -2.16% sell-off.
The Nasdaq on Monday was undercut by a sharp sell-off in stocks that have benefited from the pandemic, such as Zoom, Peloton, Amazon, and many others. Amazon on Tuesday then fell by -3.16%, adding to Monday’s loss of -5.50%, after the EU announced an antitrust investigation into whether Amazon used data from independent merchants to help its own retail division. That provided another example of the tightening global regulatory constraints that are hitting many high-profile tech companies.
The positive Pfizer vaccine news on Monday prompted a knee-jerk reaction as the markets started to see some light at the end of the tunnel for a vaccine and an eventual end to the pandemic. In the meantime, however, pandemic infections are soaring, raising concern that some states might be forced into a new round of business shutdowns to prevent hospitals from being overrun.
New U.S. Covid infections have been above 100,000 for the past week and spiked as high as 141,000 last Thursday, according to Johns Hopkins. The 7-day average has spiked up to around 120,000, doubling in just the past month. The recent spike in new Covid infections seems to be seasonal in nature as people move indoors during the colder weather and possibly as drier air makes transmission easier.
The current spike in Covid infection rates seems likely to continue until restrictions tighten up or until the seasonal spike runs its course. There is also hope that vaccines will soon ride to the rescue. Assuming Pfizer’s vaccine gets emergency approval in the next few weeks, there is hope that 25 million high-risk Americans could get vaccines by year-end. Mr. Fauci said yesterday that he expects vaccines to be readily available to the general public by April.
There is hope that other vaccines will be available soon, such as Moderna’s vaccine. There is no shortage of vaccine candidates with 52 Covid vaccines currently in clinical trials on humans and 87 in pre-clinical investigation, according to the New York Times.
Markets await Congressional fiscal action during lame-duck session — Congress has two main fiscal bills to consider as it returns to Washington after last week’s election: (1) a spending bill to replace the expiring CR on December 11, and (2) a pandemic stimulus bill. The Senate has already returned to session while the House is expected to return to session next week.
Congress has only 3-1/2 weeks to pass a new spending bill before the current continuing resolution (CR) expires on December 11. If no bill is passed, there will be another U.S. government shutdown. Congressional committees are working on an omnibus spending bill that would authorize spending through the end of the current fiscal year on September 30, 2021.
The overall amount of the spending bill for the remainder of fiscal 2021 has already been agreed upon, which was a big step forward. However, there are sharp partisan differences regarding exactly how the money will be spent and about various poison-pill riders. It also remains to be seen how cooperative President Trump will be in approving the spending bill. Mr. Trump, for example, might demand border-wall spending that House Democrats would categorically oppose.
Due to the difficulties of passing a full omnibus spending bill, there is the possibility that Congress would return to its well-worn path of passing another short-term CR. That would punt a spending bill into early 2021 after the new Congress is installed and President-Elect Biden takes power.
Another obstacle on the fiscal horizon is that Washington will have to raise the debt ceiling by autumn 2021 or there will again be the threat of a U.S. sovereign debt default. The debt ceiling will be automatically reinstated on August 1, 2021. The Treasury will then be able to use its usual emergency procedures to push back the X-date to sometime during autumn. At the X-date, the Treasury will have no cash and no ability to borrow more money, thus forcing the Treasury to start defaulting on its financial obligations.
While control of the Senate has yet to be determined, there is a strong likelihood of divided government in 2021. That means that there is a chance that a debt ceiling hike in autumn 2021 could become a new political flashpoint for the markets with the threat of a U.S. sovereign debt default.
Meanwhile, the odds look dim for a stimulus bill during the lame-duck session. Senate Majority Leader McConnell and House Speaker Pelosi in recent days restated their highly divergent positions and gave no indication that they have any interest in compromising. Mr. McConnell is at $500 billion, and Ms. Pelosi is at $2.4 trillion.
The chances for a deal seem even more remote because President Trump has not given any indication since the election that he still wants a stimulus deal and whether he is willing to try to strong-arm Senate Republicans into agreeing to a deal with Speaker Pelosi. Also, Ms. Pelosi may want to wait to negotiate until she sees whether Democrats can win control of the Senate in the two run-off elections on January 5 for Georgia’s two Senate seats.
