Stocks are up this morning because Moderna MRNA said its experimental vaccine candidate was 94.5% effective, according to interim analysis of its Phase 3 study. Morgan Stanley MS raised its S&P 500 price target to 3,900 but predicted the index to stumble in the near-term. It comes after Goldman Sachs boosted its year-end 2021 target to 4,300 last week.
We are very bullish on equities and think the vaccine news along with a GOP win of the Senate will drive the S&P 500 past 4100. A GOP Senate loss could be negative toward the markets because the Democrats would be able to remove tax cuts and most of the Trump’s pro-business agenda.
The longer term outlook for world growth became a bit less uncertain last week after Pfizer’s encouraging news on a vaccine. However, initial exuberance over the prospect that a vaccine could be available by early 2021 was deflated by escalating virus cases in the U.S. and Europe and the return of restrictions. Hence, faith in the sustainability of the V-shaped recovery wavered and will continue to be put to the test this week. In that light, fundamentals will come back into focus. Attention will be on retail sales and production data from the U.S. and China. In Europe, Brexit talks will be front and center.
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- Equities rally on positive Moderna vaccine news; Dow near 30k, tech lags
- Treasuries little changed in quiet trading, 10-year rate at 0.903%
- Empire State index disappoints, fell -4.2 points to 6.3 in Nov from 10.5 in Oct
10:44 ET Treasury Action: trading is relatively quiet as the markets assess a variety of factors, through with the new vaccine news dominating. Treasuries are little changed as overnight losses have been trimmed. The long end is marginally underperforming with the bond yield fractionally higher at 1.659% and the 10-year at 0.903%, while the 2-year has dipped slightly to 0.177%. The selloff from October has left bond bears on hold for now. The 10-year has yet to breach 1.0% as even with a vaccine, the economy’s recovery is seen taking some time. There are also some expectations the FOMC could decide on extending QE at its December meeting given Chair Powell’s focus, and echoed by other Fed officials, on downside risks. Meanwhile, Wall Street is firmer, paced by a 1.45% rally in the Dow that is just shy of the 30k level. The NASDAQ has also bounced into the green on the bullish momentum.
10:07 ET Corporate bond update: the calendar is burgeoning amid a rush to get cheap money amid a very positive environment and ahead of the abbreviated Thanksgiving holiday week. Some 10 deals are expected today. For the week, sales are expected to total about $25 bln to $30 bln. Headlining today is a benchmark 3-year from the World Bank. Georgia-Pacific plans a 3- and 5-year sale. Goldman Sachs has a 3NC2 fixed-to-FRN, and a 3NC2 FRN. Hilton Worldwide announced $1 bln in 8.5NC3.5 and 10.NC5.5 offerings. Athene Global Funding has a 10-year note. There is a 10-year from Mexico. The combination of increased risk appetite and supply isn’t putting much pressure on Treasuries, however, as the Fed is seen keeping a lid on rates.
10:03 ET Oil Action: WTI crude rallied more than 4% to $42.08 early in the session, with the bounce coming on the back of the Moderna vaccine news. Distribution of the new, and reportedly highly effective vaccine could begin as early as December. In combination with Pfizer’s vaccine entry announced last week, prospects for a faster global rollout could mean economies open up much more quickly, which in theory would ramp up demand for oil. In the meantime, OPEC+ continues to hint at extending their voluntary production cuts, another positive for crude prices. Prices have since eased back under $41.30, as the dollar firmed up some, and has Wall Street has pared opening gains. Next resistance comes at Thursday’s $42.19 high.
09:05 ET Stocks are mostly firmer following news from Moderna that their vaccine is 94.5% effective based on early results. The Dow mini has rallied 1.5% and the S&P 500 mini has firmed 0.9% in pre-market futures trading. The NASDAQ is -0.4% in the red, as the stay at home tech firms are under pressure again. Moderna shares have surged 16% in pre-market trading. But as with the Pfizer vaccine news last week, the logistical challenge of manufacturing and distribution remains an unknown, which could again make for choppy trading. There’s been mixed earnings news with Palo Alto Networks climbing on their earnings beat. JD.com also saw strong sales though is suffering from some profit taking, while Casper reported heavier losses than expected. Home Depot is buying HD Supply. And BBVA is selling its U.S. retail banking arm to PNC Financial Services. European bourses are in rally mode, with the Euro Stoxx up 1.5% and Germany’s DAX 1.1% in the green. The UK’s FTSE 100 has risen 1.9%. Asia’s stock markets closed with solid gains, led by a 2.1% jump in Japan’s Nikkei 225 that followed news of a solid Q3 GDP rebound. China’s CSI 300 improved 1.0%.
08:59 ET Treasury Action: yields have dipped from earlier highs after the overnight selloff saw rates jump on the surge in risk appetite following the positive vaccine news from Moderna. The disappointing drop in the Empire State index might have elicited a little profit taking in stocks from the huge rallies of late. The 2-year rate is now fractionally richer at 0.177% versus a peak of 0.183% earlier, which was the highest since June. The 10-year and 30-year yields are still slightly under water, up about 1.1 bps to 0.908% and 1.662%, respectively, compared to highs of 0.929% and 1.687%. Stocks have faded from their best levels as the markets stabilize. The Dow mini is leading the gains with a better than 1.5% increase, coming at the expense of tech with the NASDAQ -0.38% lower.
08:54 ET The -4.2 point November Empire State drop to 6.3 from 10.5 in October and 17.0 in September left the measure just above the 3.7 August reading, and well below the 17.2 figure in July that marked a 20-month high. The ISM-adjusted Empire State similarly fell -2.0 points to 50.9 from an 8-month high of 52.9 in October and 52.7 in September, versus a lower 49.3 in August and an all-time low of 30.8 in April. Today’s November Empire Sate drop to a still positive level is consistent with a moderating uptrend in output in the face of weak inventories and rising sales, with headwinds from delayed stimulus and growing virus outbreaks. We still expect a November Philly Fed pullback to the 20.0 area from an 8-month high of 32.3. We expect the November ISM-adjusted average of the major sentiment surveys to slip to 57 from a 2-year high of 58 in October, 56 in September, and 54 in July and August, versus a 36 trough in April and a 2008-09 bottom of 37.1 in March of 2009. We assume a 57 average in Q4, after averages of 55 in Q3, 44 in Q2 and 52 in Q1.
08:37 ET Empire State manufacturing index fell -4.2 points to 6.3 in November, disappointing expectations for a bounce, after dropping -6.5 points to 10.5 in October. It’s the lowest since August, yet it’s a 5th month in expansionary (positive) territory. It was at 2.5 a year ago. The index posted steep declines in March through May, hitting a record low of -78.2 in April. The index started the year at 4.8 and hit a high this year of 17.2 in July. The components were mixed. The employment gauge rose to 9.4 versus 7.2 previously, though the workweek dropped to 4.8 from 16.1. New orders tumbled to 3.7 from 12.3. Prices paid climbed to 29.1 from 27.8, and is the highest since 31.5 in January, with prices received doubling to 11.3 from 5.3. The 6-month index edged up to 33.9 versus 32.8, with employment little changed at 22.2 from 23.2 and new orders at 32.9 from 37.7. The future prices paid index rose to 46.4 from 39.1 and prices received at 23.2 from 16.6. Capex improved to 17.9 from 11.9.