US stocks are entering holiday mode as concerns over a virus variant temper a humble rebound that stemmed from the approval of a fiscal relief bill. Wall Street ignored a wrath of economic data that showed the strongest parts of the economy, housing and the consumer, are wavering. The playbook for many traders remains to buy every major dip as governments and central banks will keep the support coming next year.
The third look at US GDP saw a slight bump to 33.4%, while personal consumption was revised higher to 41.0%. The record rise in GDP had no impact on markets as everyone remains focused on how strong the fourth quarter will be. As the country tries to get COVID under control restrictive measures will continue to weigh down on fourth quarter forecasts. The Atlanta Fed GDP Now index at the end of last week was calling for 11.1% growth, while consensus estimate is closer to a 2% contraction.
The 10:00 am swath of data provided a gloomier picture but did little make anyone believe these short-term worries will mostly last a few months. The Conference Board present situation plunged but hope remains for over the short-term. The monthly consumer confidence survey showed current conditions deteriorated sharply as the third wave of COVID-19 pressures the labor market. An upbeat short-term outlook should confirm Wall Street’s playbook to buy every dip.
Existing home sales are slowing down but still exemplifying the strength of the housing sector. The first drop in six months, sales of previously owned homes dropped 2.5% to 6.69 million, slightly steeper than expected. The hot housing market appears poised to steady on low inventories, inflated prices, colder weather, and vaccine breakthroughs.
The December Richmond manufacturing survey was a bright surprise as the headline came in better-than-expected at 19, with strong gains with new order volumes.
The dollar is posting a rare back-to-back gain as growing COVID-19 concerns trigger steady safe-haven flows. The mutation of the coronavirus will deliver a period of great uncertainty over the next two weeks to see if the current vaccines will be effective. Optimism is high that the vaccines will still prove to be effective and can be tweaked in the future. The short-term pain for the global economy could allow the dollar to rebound a bit more.
Crude prices declined as global lockdowns appear to be a harsh reality for the first quarter. The crude demand outlook over the next few months is bleak as US hospitalizations are at a record high, a new COVID strain could be spreading across Europe, and as skepticism grows over how quickly people will be willing to get vaccinated.
Despite all short-term pain for the global economic recovery, OPEC+ has provided confidence that their strategy should be supportive of keeping Brent around the $50 level. Oil prices appear to be following the overall risk appetite of the markets and have pared earlier losses.
Gold is under pressure as a deteriorating outlook triggers strong flows back into the dollar. Now that Congress finally delivered a $2.3 trillion year-end spending bill and fiscal relief package, gold will have to wait until next year for another strong catalyst. The development of a new variant of the virus will likely trigger harsher restrictive measures across the globe, but additional support won’t be seen until next year.
Gold’s outlook is still very bullish as a gloomy global first quarter will keep all the major central banks and governments providing more support. The holiday seasons are here and choppy conditions will remain in place for the precious metal.
Bitcoin is bouncing back as fintech companies continue to buy it. PayPal and Square’s Cash App is providing underlying support for Bitcoin and it seems fresh retail interest is icing on the cake. Bitcoin is still in a bull market as today’s gains occur as the dollar rebounds and the third-largest cryptocurrency gets caught up in a lawsuit with the SEC. Thin conditions over the next couple of weeks could easily allow Bitcoin volatility to test the $20,000 or $25,000 levels.