A Market Searching for Direction

Today marks the beginning of the pandemic from the market's perspective. One year ago today the S&P 500 Index peaked before selling off nearly 34% as the pandemic took hold and we shut down our own economy. For those in the cheap seats claiming revisionist history, let me be clear, NO ONE could have predicted that event. Thankfully, consumers were responsible in their spending, states began to re-open, and Operation Warp Speed helped two vaccines begin to be distributed. The contrast between February 19th last year to February 19th this year is that the health of the nation and the health of the economy are looking bright. Here's what we are seeing this week:

• Very Encouraging Virus Numbers. Let's start with the virus, since we're marking the anniversary of the pandemic today. The daily positivity rate for COVID tests has plummeted from 13.7% just over four weeks ago to 5.1% as of yesterday. The 7-day average for Daily Cases has declined 71% since the peak on January 11th. For some perspective, when cases dropped this summer, the decline was only 49% over a 50-day period versus this most recent decline being much greater over a shorter period. Very encouraging news! In addition, hospitalizations have declined 53% since the January 6th peak and the 7-day average for Daily Deaths has dropped 40% since the peak on January 13th. Meanwhile, vaccinations continue at an impressive rate. Over 1.6 million vaccination shots are being administered daily. So far, 73 million doses of the vaccines have been delivered in the U.S., with 41 million people having received at least one shot and more than 16 million people having been fully vaccinated. If we stay on this pace of vaccination delivery, the CDC estimates that at least 50% of the population would have received at least one shot by July 8th. The CDC also estimates that those that have already been infected with COVID plus those who were asymptomatic and were never tested is approximately 25% of the population. That would get us to herd immunity (70% of the population with antibodies) by this summer.

• A Market Looking For Direction. Just like the boy who cried wolf, you can't make promises without delivering. So far, the government has failed to deliver. The Biden administration initially offered $2,000 checks as part of a new round of COVID stimulus for the economy. That number has since been changed to $1,600 and now $1,400. Meanwhile, Congress has yet to take up a vote on the $1.9 trillion proposed stimulus as they meet to decide how many additional items to pack in, which is what we typically see from our fearless leaders. The market is trying to find direction at this point. The promise of stimulus pushed equities higher and now the lack of delivery, plus energy woes in the Southwest, and rising Treasury Yields has left the market wondering what's next. The economic releases this week were a mixed bag. The Philly Fed and Empire State manufacturing indices surprised to the upside for January. Retail Sales showed 5.3% growth in January versus only 1.1% growth expected. December's retail sales number was -1.0%. Both the Home Builders' Index and Building Permits showed improvement month-over-month. Finally, Capacity Utilization showed better than expected improvement in January. This is a dubious sign as it indicates growth and demand in the economy, but can also be a leading indicator for inflation. Conversely, Housing Starts and Weekly Jobless Claims disappointed this week. Claims rose more than expected last week and the previous week's number was revised higher. The sooner state economies fully re-open, the faster the labor market can proceed to full employment status. In light of a lot of noise, the U.S. Financial Conditions Index continues to remain well below zero, indicating stability.