Record November ends with profit-taking, soft US data

US stocks are lower on the last trading day of the month as hedge funds lock in profits for a record November.  Risk appetite is not getting help from renewed coronavirus restriction concerns, lack of stimulus urgency from lawmakers, softening US data, and as the Trump administration adds more firms to the list of companies blocked from American investment due to military ties.  Merger Monday provided a limited boost after S&P Global Inc. announced the acquisition of IHS Markit in an all-share deal worth USD39 billion.  The financial world is seeing two of the largest data providers combine in what is the second-biggest deal of the year.

Today’s weakness will likely be a pause in the COVID-19 vaccine-led global equities record rally.  Wall Street will remain fixated on this week’s labor figures which could be the tipping point to make Congress deliver much-needed relief as many unemployment benefits and loan moratoriums expire at year-end.  Around 12-million Americans could lose unemployment benefits next month if the CARES Act is not extended.

Central banks will also keep stock markets pumped up as investors are seemingly convinced the ECB will boost the Pandemic Emergency Purchase Program by at least 500 billion euros and that the Fed will tweak their bond-buying program and buy longer duration bonds.

US data disappoints

The MNI Chicago report confirmed weakness is making its way through the Midwest.  The headline reading of 58.2 was much lower than the prior month of 61.1 and the consensus estimate of 59.0.  Business barometer, employment, and new orders all climbed at a slower pace, indicating the current expansion is losing momentum.  One data point won’t force Congress to act, but a slowdown around the holidays is likely what is needed to get the stimulus relief bill pushed through.

US pending home sales for October posted a rare miss for the housing sector.  October pending sales declined 1.1%, a second consecutive decline. However, this was more likely a sign that inventories are the primary issue and not demand.  Contract signings to buy previously owned homes were anticipated to slow down in the winter and especially as vaccine progress could see some homebuyers focus on getting back to the big cities.

The Dallas Fed Manufacturing index also came in below expectations with significant declines in production, capacity utilization, and new orders.  The recovery is at stall speed and mounting COVID restrictive measures will raise expectations for softer prints over the next couple of months.

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