December 17, 2020
Drivers: Fiscal stimulus, vaccines and solid corporate earnings have been driving equities higher recently. Over the past week, we’ve received incremental positive developments for all three drivers. The fiscal stimulus package has apparently grown in size from to ~$900B from ~$750B earlier this week, while US vaccine supply headlines also improve and pull the expected timeline for mass vaccinations forward into the spring (assuming MRNA approval). The next major vaccine catalyst will likely be the interim JNJ Phase 3 data (single dose), due out in early January.
Next: Most equity indices have seen decelerating price trend momentum over the past two weeks despite improved stimulus and vaccine headlines. The technical picture seems to reflect diminishing marginal upside from improved fundamentals into a period of reduced market liquidity at year-end. In the past, we’ve noted that catalyst vacuums (gets quiet next two weeks) have a tendency to result in trend continuation, while reduced liquidity typically results in increased single-stock volatility. These conditions reduce the signal quality of market behavior and often leave markets more susceptible to pressurization events.