1. Moving the markets

As solid early rally hit the skids, as the Dow performed a 330-point U-turn with two of the three major indexes closing in the red leaving only the Nasdaq above its unchanged line and sporting a +0.50% advance. As has been the case lately, SmallCaps outperformed but even that sector gave up part of a substantial early gain of over 2% to close with a more modest +0.84%.

While the vaccine rollout (V-day) continued full force to hundreds of distribution centers across the country, the first official dose was administered in New York. Offsetting that news were global and domestic headlines announcing and implementing the most stringent “full shutdowns” referred to as level 3.

For sure, the economic impact will be widely felt, with business closures accelerating, and eventually affecting markets, but some see the fallout to be modest:

“It is abundantly clear the economy is slowing as local shutdowns continue, but any impact on the equity market has been limited so far. Whether this continues into 1Q is unclear, but our guess is pullbacks will be limited unless something materially changes in the vaccine story,” Tavis McCourt, institutional equity strategist at Raymond James, told clients in a note.

In the meantime, the battle over a new stimulus package goes on, as key disagreements, such as state and local government aid, remain and have been the primary sticking points.

The flight to safety was on late in the session with the 30-year bond yield melting after an early rise, while the US Dollar dumped at the beginning and then spiked towards the close.  

Tomorrow starts the second half of the month, which has been seasonally very strong, as Morgan Stanley points to in this 70-year chart.

We’ll have to wait and see if this time will be different—or not.

1. Moving the markets

The rebounding efforts after yesterday’s slump already failed in the futures market, and this uncertainty carried over into the regular session with the Dow and S&P slipping, while the Nasdaq shook off weakness and closed in the green by +0.54%.

Some market sectors saw solid increases, such as SmallCaps (IWO) and MidCaps (IWP), which gained +1.5% and +1.08% respectively, both of which own in my advisory practice.

The lack of a driver to ramp the markets higher was apparent as lawmakers continued with stimulus struggles with doubt spreading that an agreement might not be reached before the end of this year.

But the band aid approach was used to at least keep the government operating for another few days, as CNBC reported:

The House of Representatives passed a government funding extension Wednesday that would keep the federal government running through Dec. 18 and buy time for further negotiations for a bigger relief bill.

On the economic front, talk of a V-shape recovery has pretty much disappeared with the latest Initial Jobless Claims jumping the most since March. Commented ZH:

Initial claims printed 853k (vs 725k exp), a 137k jump from last week and the biggest weekly increase in new claims since March…

This is the highest number of new benefits seekers in three months.

Continuing Claims also rose on the week, from 5.527mm to 5.757mm – the first increase since August and biggest increase since May…

But the total number of unemployment claimants has dropped below 20 million…

In the end, traders saw no reason to jump in the markets, and even the ever-present computer algos seemed to lack motivation to commit.

1. Moving the markets

An early bounce in the markets disappeared in a hurry with tech shares struggling in part due to the Federal Trade Commission and state attorneys general led by New York filing an antitrust complaint against Facebook. The allegations include stifling of competition to protect its monopoly power.

That announcement took down the tech sector the most, with the Nasdaq surrendering almost 2%, but the other two major indexes stumbled as well. However, given the fact that we were hovering in record territory, today’s pullback was modest and in line of what you might expect after scoring all-time highs.

“I think we’re having a bit of a digestion day after hitting new highs,” said Keith Lerner, chief market strategist at Truist. “There’s some hesitation because of the stimulus talks, but leadership still shows the market is leaning toward something happening” on that front. Lerner pointed out that small-cap stocks weren’t down as much as the large-cap indexes.

Of course, the battle over the relief bill went on full force and took the starch out of the early levitation, after McConnell slammed Schumer over the relief package rejection.

ZH summed up the tit for tat like this:

*MCCONNELL SAYS DEMOCRATS MOVING GOALPOSTS ON AID BILL

*MCCONNELL SAYS SCHUMER, PELOSI BRUSHING OFF GOP AID PROPOSALS

*MCCONNELL SAYS DEMOCRATS NEED TO DECIDE TO MAKE LEGISLATION

FANG stocks got hammered with JP Morgan analyst Ryan Brinkman not helping matters when opining that those shares were “drastically” overvalued.

The usual support from the well-documented short squeezes was conspicuously absent when that sector suffered its biggest loss since the end of October.

The US Dollar did a turnaround and spiked higher thereby putting the pressure on gold with the precious metal giving back its hard-fought gains of the recent past.

With equities being sold, you would have expected bonds to rally, but that did not happen; yields rose pulling down bond prices.

In the end, it was just of those days where there was simply no place to hide.