U.S. equity markets split today as the S&P 500 retreated from a new all-time high on news that Pfizer will only be able to ship half of the vaccine doses it previously planned to distribute. The Dow Industrial charged higher behind shares of Boeing, which took its first order for its 737 MAX jets. Airlines and cruise lines were among today's top gainers and gold prices shot higher as the U.S. hit another daily record for COVID-19 cases and deaths.

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Weekly U.S. jobless claims came in lower than expected, but were still above 700,000 as layoffs continue across the country. We'll learn more about the health of the labor market when the November nonfarm payrolls report is released Friday morning. Economists expect around 450,000 jobs to have been added last month and another drop in the unemployment rate, but there will still be more than 9.5 million Americans out of work. 

It's another reason why stimulus talks may be heating up in Washington. They aren't going anywhere, but at least politicians are talking. Fed Chair Jerome Powell continued to cajole lawmakers to extend a financial bridge to small businesses and households that are facing the end of their benefits at the end of the month, but whether they act before their holiday recess in a couple of weeks is the $900 billion question.

share price chart

The Fed Behind the Curtain

Behind every major move in asset classes, including the recent equity market records, is the not-so-subtle hand of the Federal Reserve. Its extraordinary monetary policy interventions in April — promising to keep interest rates at or near zero until 2023, the purchasing of government and corporate bonds, and the relaxation of its inflation targets back in August — have had more than a profound impact on the capital and cryptocurrency markets.

  • The U.S. Dollar: The dollar is the weakest since April 2018, held back by Treasury yields that are below 1%. Low interest rates almost always translate to a lower dollar.
  • Emerging Markets: Emerging markets have been on a tear lately, boosted by the low dollar, which helps exports. In an economic recovery that most people expect in 2021, they should continue to benefit as demand rises.
  • Global Stocks: Global stocks are at record highs because low interest rates push investors into stocks in search of yield, even if they are afraid of high valuations. Investors have walked that high-wire all year and don't seem to be afraid to continue.
  • Copper: Dr. Copper is at a seven-year high, and of all the metals, copper prices are the purest indicator of strong economic activity and expectations for more of it. It is heavily used in manufacturing across all industries, and low interest rates and the cheap dollar have spurred demand across the planet.

A key ingredient that could upset this dynamic is inflation. We know it is coming, and it is already here in some areas of the economy. But inflation is still historically low and the Fed has promised to keep its eye on it so it doesn't overheat the capital markets, which are living in a goldilocks environment — not too hot and not too cold.

Share of Total Continuing Claims
Chart courtesy Bespoke Investment Group.

Government Dependent

712,000 Americans filed for first time unemployment claims last week, which was less than forecast but still very high this late into the pandemic. We know the reasons why, but it is still a shocking number. Just as shocking, a record 4.569 million workers filed for extended unemployment benefits last week, up 59,732 from the prior week, and at least 20.1 million people were receiving benefits under all programs in mid-November. 

Over a quarter of total continuing jobless claims were from the CARES Act extension programs like Extended Benefits and PEUC. Those are set to expire at the end of this month, which makes the lack of a new stimulus bill, or a simple vote to extend the CARES Act measures, critical right now. The urgency in Washington comes in fits and starts, but for American families facing the end of that financial lifeline, it's omnipresent.