Transition time, housing shines, confidence misses, dollar drops

Presidential transition moves ahead

Wall Street is increasingly betting on cyclicals now that the Trump administration has given the green light to the formal transition process to President-elect Biden.  The General Services Administration (GSA) acknowledged President-elect Biden as the winner and will release the necessary resources and services that will allow his team to be prepared for national security threats and coordinate with Trump officials over several matters, including the coronavirus pandemic response.

US stocks must be taking their Xanax as coronavirus anxiety levels continue to ease on vaccine optimism and the beginning of the Biden transition.  The Russell 2000 index is leading the charge, while the Nasdaq is underperforming as investors anticipate a Yellen led Treasury alongside Fed Chair Powell will deliver an unprecedented coordination of monetary and fiscal policy that will pump up the battered sectors of the US economy.  Some investors are also breathing a sigh of relief since Biden did not appease progressives and choose Senator Elizabeth Warren to lead the Treasury.

Stocks shrugged off news that the Trump administration will impose more limits on China and extended gains after Pennsylvania certified election results in favor of Biden.

Housing

The S&P Case Shiller report provided the housing sector with another A+ grade.  The housing Covid trade was still running strong between July and September, so investors might not overreact to the strong spike in home prices.  With housing prices hitting a six-year high, this could be close to the peak.  Coronavirus vaccine optimism will likely derail the rush to the suburbs, but low interest rates will keep housing demand steady.

Confidence/Richmond

The Conference Board consumer confidence reading for November missed expectations with a 96.1 reading, lower than the consensus estimate of 97.9.  Today’s confidence readings are a 3-month low that confirm pessimistic views that the labor market outlook is deteriorating.  Expectations plummeted from 98.2 to 89.5, the biggest drop since July.  The US consumer might not deliver strong spending this holiday-season and that could weigh on consumer stocks.

The Richmond Fed manufacturing index disappointed with a 15 print, down significantly from the 29 seen in October.  Both the Consumer Confidence and Richmond Fed manufacturing index reflect weakness that could persist over the next couple of months.   Stocks showed little reaction to both data sets.

FX

The dollar is declining now that the Biden administration can finally begin the transition process, somewhat removing a short-term risk.  The dollar’s slide, however, will likely run out of steam as traders enter holiday mode.  The key focus on FX will be Brexit over these next couple of weeks and optimism is high that a last-second trade deal will get done.

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