The S&P 500 registered a new record high on Wednesday, rising 0.2% as the rotation to economically sensitive stocks continued into the first week of December. Sentiment remained upbeat despite several gloomy reports. The number of US Covid-19 hospitalised patients passed 100,000 for the first time, while new cases jumped by a record 195,695, and deaths remained on the rise. On the data front, private ADP payrolls grew by 307,000 in November, well below estimates of 475,000 and at the slowest pace since July. According to the latest Federal Reserve Survey, the surge in Covid-19 cases has slowed economic activity in several US regions.
However, none of these reports deterred investors from taking risk. The buzz word is ’Vaccine’, which is keeping markets alive and buoyant. Pfizer and BioNTech have already got the approval for emergency use of their Covid-19 vaccine in Britain and it's expected that the US will follow on 10 December, while Moderna and AstraZeneca are in the pipeline. Market participants are hoping for a fast vaccine rollout that would significantly reduce virus counts, translating into higher demand and a speedy economic recovery.
The renewed negotiations on a US Covid fiscal package is also another source of optimism and if the markets did get one in the next couple of weeks, it could provide another boost to equities. Still, investors must not expect one to be delivered soon as Democrats and Republicans remain divided on the stimulus size. If we do not get an agreement, it shouldn't be a big problem as overall, we still believe the strategy is to buy on any dips.
Oil prices were slightly lower this morning as OPEC members and their allies are set to resume talks today after failing to reach an agreement on production levels earlier this week. Given where oil prices stand now, markets are convinced that the current policy of 7.7 million bpd cuts will be extended for at least another three months. While this is also our base case scenario, we wouldn't rule out a surprise. Any signs of cracks within the alliance would lead to a significant drop in oil prices, so keep a close eye on the meeting's outcome.