COVID-19 Hurting Mobility
Redbook same store sales growth in the week of December 12th rose from 2.1% to 2.5%. That’s still relatively weak. We’ve seen varying reports from this holiday season, but it hasn’t stopped retail stocks from moving higher as the XRT retail index is up 11% in the past month. Investors are looking past any potential weakness in December and looking forward to the 3.7% spending growth consumers are projecting.
Mobility is basically at a stand still which some argue is a good thing because it means COVID-19 will stop spreading so quickly. The northeastern blizzard this week surely won’t help mobility and consumer spending (other than spending at supermarkets). As you can see from the chart above, the 7 day moving average of mobility is back where it was in June. It’s down over 60% from where it was before the pandemic.
The good news is the pandemic has peaked in the Midwest and we are starting to see vaccine counters which will only spike higher in January. The bad news is there are now 112,816 people in the hospital. The 7 day average of deaths is at 2,472 which is a record. December is easily the deadliest month of the pandemic. The best case scenario would be a decline in cases in the next few weeks and more vaccines going out. It’s probable that deaths will fall in January.
Fed Meeting Wednesday
We are inching closer to a fiscal stimulus. It has been painstaking. McConnell stated, “We’re not leaving here without a Covid package.” Obviously, he has said that before, but the difference now is the deadline for a deal is in 3 days. It’s good to hear optimism when the final details of the deal are being settled. We could be on the precipice of a deal which includes unemployment benefits of $300 per week for 16 weeks.
There won’t be another round of $1,200 checks. Basically, the government is doing the minimum to have the economy survive the pandemic. It’s an odd situation because I think $1,200 checks are very popular with citizens. The good news is in a few months, the economy won’t need fiscal policy to help it.
Some are suggesting a stimulus is bad because it means the Fed will pull back on monetary help. That’s very wrong because the Fed knows this won’t be a massive stimulus. The Wednesday Fed meeting will be dovish because there is still uncertainty over the vaccines being properly distributed.
The Fed will only turn hawkish after the pandemic is over. We can see it being more hawkish in the spring or summer. As you can see from the chart above, the market is very unsure of when the Fed will pullback on QE. That will be clarified within the next 3-6 months. It could be a hawkish clarification because there won’t be a need for QE in 2022.
Solid Industrial Production Report
The November industrial production report was good, but not nearly as exciting as the Markit report made it out to be. Monthly industrial production growth was 0.4% which beat estimates by a tenth. However, October’s growth fell from 1.1% to 0.9%.
As you can see from the chart below, yearly growth fell from -5% to -5.5%. It’s looking like the only way we will get positive yearly growth is by having easy comparisons. Those will start in March which is in 4 reports. The capacity to utilization rate rose from 73% to 73.3% which is a cycle high. There is still plenty of room for it to rise (to the high 70s at least).
Manufacturing growth was 0.8% monthly which doubled estimates. Furthermore, last month’s growth rate was revised up a tick to 1.1%. That’s an amazing combination. Yearly growth fell from -3.3% to -3.5%. Motor vehicles production was up 5.3% monthly. Primary metals, computers/electronics, and aerospace were all up.
The manufacturing diffusion index shows 66% of manufacturing industries are in decline. The 3 month average is 69% in decline; this means this month was better than the past two. This month had a broad based recovery above the flatline. This is how all post-recessionary manufacturing recoveries look.
The first half of 2021 will be a monster year for manufacturing and the cyclicals. By 2022, we might already be looking for a slowdown. That’s how quick these cycles are. We had multiple manufacturing recessions in the last expansion. Energy stocks will do better for longer than most cyclicals because investment in fossil fuel production is at a record low.
That will create a long cycle of higher prices which is good for these stocks. There has been a ton of investment in renewables, but they won’t take the place of fossil fuels for many decades. OPEC predicts fossil fuel usage will grow until 2040. These are short duration stocks. Investors in these stocks mostly care about 2021, not 10 years from now.
Americans Want The Vaccine
The chart below shows the order of who Americans want the vaccine to go to. That’s basically in line with where it will go. It’s logical to have it go to seniors before kids because the virus kills the elderly at a much higher rate.
One of the fears investors have is people will refuse to take the vaccine. That’s not a realistic fear. People will only be afraid if the vaccines cause bad side effects or the virus mutates. They are cautious. As you can see from the chart, 40% will get it as soon as it is available and 44% will wait a bit.
Those who will wait probably won’t be able to get it immediately anyway. It won’t be available to everyone who wants it until the spring. Only 15% will never get it. Some of the people in the 15% won’t want to get it, but might be forced to by their job. Public approval won’t be a problem for the vaccine unless something goes wrong. If nothing goes wrong, people will sign up to get it.
Recent Comments