Equities Catch Their Breath After Recent Rally…..

U.S. stocks climbed out of an early-session hole to close mostly higher, but little changed. This followed the recent surge which took stocks back to record high territory, largely driven by vaccine optimism. That optimism received another boost today, as the vaccine developed by Pfizer and BioNTech was given emergency authorization by the U.K. Moreover, M&A news continued to pour in, as Dow member Salesforce.com agreed to acquire Slack Technologies for an enterprise value of $27.7 billion. In economic news, the Fed Beige Book indicated that several Districts were beginning to see slowing growth, ADP’s private sector employment report missed estimates ahead of Friday’s key nonfarm payroll release, and Fed Chairman Jerome Powell and Treasury Secretary Steven Mnuchin concluded two days of Congressional testimony. Treasury yields added to yesterday’s solid rise as bond prices continued to slide, and the U.S. dollar resumed a recent drop. Crude oil and gold prices traded higher. Asia and Europe finished mixed.

The Dow Jones Industrial Average rose 60 points (0.2%) to 29,884, the S&P 500 Index increased 7 points (0.2%) to 3,669, and the Nasdaq Composite declined 6 points (0.1%) to 12,349. In heavy volume, 997 million shares were traded on the NYSE and 5.1 billion shares changed hands on the Nasdaq. WTI crude oil was $0.73 higher at $45.28 per barrel and wholesale gasoline added $0.02 to $1.24 per gallon. Elsewhere, the Bloomberg gold spot price gained $13.14 to $1,828.38 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—decreased 0.2% to 91.10.

ADP’s November employment report misses ahead of Fed’s look at economic activity

The ADP Employment Change Report showed private sector payrolls rose by 307,000 jobs in November, below the Bloomberg forecast calling for a 440,000 gain. October’s rise of 365,000 jobs was revised to a 404,000 increase. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday’s broader November nonfarm payroll report, expected to show headline employment grew by 486,000 jobs and private sector jobs rose by 560,000. The unemployment rate is forecasted to dip to 6.8% from 6.9% and average hourly earnings are projected to tick 0.1% higher month-over-month (m/m), and be up 4.2% y/y.

The MBA Mortgage Application Index declined by 0.6% last week, following the prior week’s 3.9% gain. The decrease came as a 4.6% drop in the Refinance Index more than offset a 9.0% jump in the Purchase Index. The average 30-year mortgage rate remained at 2.92%.

Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin concluded their two-day Congressional testimony in front of the House Financial Services Committee. The two discussed the $2.2 trillion economic stimulus bill, known as the CARES Act, which was put in place in March and aimed at combating the severe disruption of the COVID-19 pandemic.

In the prepared remarks Powell echoed what he told the Senate yesterday that for the medium term, the recent news on the vaccine front is very positive, but the rise in new COVID-19 cases, both here and abroad, is concerning and could prove challenging for the next few months. He also reiterated that the economy remains deeply damaged by the pandemic and that the outlook for the economy is “extraordinarily uncertain,” while holding off on signaling any new measures that the Central Bank will take, with the last two-day monetary policy meeting of 2020 set to conclude on December 16th. Powell did continue to stress that the Central Bank will use all of its tools to help the economy recover and continued to pound the table on the need for further fiscal relief.

The testimonies come after the Treasury decided last month to let some of the Fed’s emergency lending programs expire at year’s end, fostering some disagreement between Powell and Mnuchin. However, Powell reiterated what he said yesterday that the Treasury Secretary has sole discretion over funding for Fed facilities and that he has no reason to question Mnuchin’s interpretation of the law. Mnuchin defended his decision to wind down some of the emergency lending facilities and continued to urge lawmakers to repurpose nearly $455 billion in unused funds to deploy targeted fiscal relief.

Treasuries continued to slide, as the yield on the 2-year note ticked 1 basis point (bp) lower at 0.16%, while the yield on the 10-year note rose 1 bps to 0.94% and the 30-year bond rate gained 2 bps to 1.69%.

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