1. Moving the markets

Optimism reigned supreme that Congress will finally pass another economic relief bill after wrangling with it for weeks. Apparently, the warring parties are growing wary and concerned about an economic fallout if no agreement is being attained.

House Speaker Nancy Pelosi invited congressional leaders, including Senate Majority Mitch McConnell, to discuss government funding and coronavirus relief, a source told CNBC. Pelosi’s outreach came after a bipartisan group of lawmakers released a proposal for another round of economic relief on Monday evening, splitting a previous measure into two parts.

Just the mere fact that one party reached out to the other was enough of a reason for the computer algos to shift out of the stagnation mode of the past few days and into overdrive by propelling the major indexes solidly higher. While the stimulus deal is not done yet, it appears to have moved out of gridlock offering some solution to the widely held gloomy near-term outlook.

Though SmallCaps (IWO) led the ramp higher with a chest pounding +2.19% gain, the broad market participated as well and, thanks to the US Dollar collapsing, Gold had a great day by advancing +1.41%.

While all this sounds hunky dory, the Smart Money is not participating in this rally, as Bloomberg’s chart shows causing ZH to warn that last time things were so out of whack, this reversal happened.  

While no one knows if it’s different this time, it’s wise to not only have an exit strategy in place but to also execute it, should the major trend hit the skids.

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.