Lawmakers reach $900bn stimulus deal as UK hit by new coronavirus strain

On Sunday evening, lawmakers reached a deal on a near $900bn stimulus package to help sustain the US economy as the pandemic continues to ravage the country. Recent economic data has highlighted an urgent need for stimulus, with weak retail sales figures and increasing jobless claim figures, demonstrating the fragility of the US economic recovery. The package includes an extension of the paycheck protection programme, funding to aid Covid-19 vaccine distribution, and $600 payments to American adults.

At the US open today Tesla’s inclusion in the S&P 500 will be officially complete, with the electric car maker becoming the fifth-largest company in the index market cap-wise. Ahead of the addition, Tesla stock jumped 6% on Friday, with trading volume running at more than four times the daily average, however out of hours trading is indicating it is currently down 5%.

Closer to home, the UK is still reeling from the coronavirus lockdowns imposed across London and the South East on Saturday after a new, mutated version of the virus was flagged. A number of EU countries – including Germany, France and Ireland – have now halted travel with the UK, while millions of peoples’ plans for Christmas have been affected.

Brexit talks continue this week between the UK and EU, with the deadline for the UK to exit the EU now just ten days away.

Tech stocks, small caps outperform

All three major US stock indices were in the green last week, with the Nasdaq Composite out in front with a 3.1% gain. Technology shares and small-cap stocks outperformed during the week; the S&P 500’s information technology sector up 3.3%, and the Russell 2000 index up 3.1%. Apple was one force driving the major indices higher, as the $2.2trn market cap giant added 3.5% during the week, taking its one-month gain to 8%. Energy shares had a tough week, with the S&P 500’s energy sector sinking 4.2%. Chevron fell back 5.7%, tempering its recent gains, although the stock is still up by 11.5% over the past three months. Similarly, Exxon Mobil fell 2.4%, with its three-month gain standing at 14.9%.

In other news, Intel’s share price fell by 6.3% on Friday, after reports that Microsoft plans to design its own chips in a bid to become more self-sufficient.

S&P 500: -0.4% Friday, +14.8% YTD (+1.3% last week)

Dow Jones Industrial Average: -0.4% Friday, +5.8% YTD (+0.4% last week)

Nasdaq Composite: -0.1% Friday, +42.2% YTD (+3.1% last week)

Sterling gains hold back FTSE 100

The FTSE 250 substantially outperformed the FTSE 100 last week, gaining 2.5% versus a 0.3% loss. A bump in the value of the pound as Brexit deal talks continued was one factor, as the companies in the FTSE 100 make the majority of their money overseas. Pharmaceutical firm AstraZeneca was one of the biggest weights on the FTSE 100, losing 8% over the course of the week, taking its loss over the past three months to 14.2%. The loss follows the company announcing a surprise $39bn deal to buy Alexion Pharmaceuticals, which takes the firm into new areas of drug research. In the FTSE 250, private air travel firm Signature Aviation led the way with a 50% plus gain, after news broke that the company is in sales talks with investment firm Blackstone.

FTSE 100: -0.3% Friday, -13.4% YTD (-0.3% last week)

FTSE 250: -0.9% Friday, -8.1% YTD (+2.5% last week)

What to watch

Heico: Aerospace and technology firm Heico has added 16.6% to its share price year-to-date, taking its market cap to $16.9bn. The company reports earnings for the three months ended October 31 on Monday, after beating estimates in each of the past four quarters. Last week, the firm announced an increase in its credit facility to $1.5bn. Analysts are expecting an earnings per share figure of $0.41 for the quarter, versus $0.62 in the same quarter last year. Currently, five Wall Street analysts rate the stock as a buy or overweight, six as a hold, and two as an underweight.

Factset Research Systems: Financial data firm Factset has gained nearly 30% in 2020 and is one of the only other significant names to be reporting earnings in the week leading up to Christmas. In the previous two quarters, the company has beaten earnings expectations by a wide margin. In September, FactSet announced plans to migrate some of its functions to the cloud using Amazon Web Services, which is a potential point of interest on the company’s Monday earnings call. Currently, analysts are split between hold and sell ratings on the stock.

Chicago Fed national activity index: The Chicago Fed national activity index is a monthly index that aims to gauge economic activity and inflationary pressure across the US. It combines 85 monthly indicators, with a positive reading indicating a growth rate above trend, and a negative index corresponding to growth below trend. November’s index reading will be released on Monday, with a decline from 0.83 in October to 0.4 expected by economists, according to Trading Economics. Investors will be watching the index for further signs of the state the US economic recovery is in.

Crunch time for Brexit talks

There were reports last week that a path to a Brexit trade deal before the end of year deadline, albeit a narrow one, still remains. But this week is very much crunch time for the UK, particularly as the parties involved said terms would need to have been agreed by Sunday December 20th in order to be voted on by the end of the year. Investors will be watching for movement on the key remaining issues this week, such as fishing rights, as well as statements from negotiators on both sides detailing whether paths to a deal still remain.

Crypto corner: Musk asks about Tesla bitcoin transfer as cryptoasset sets new peak

Tesla founder and billionaire Elon Musk enquired publicly about converting Tesla’s share capital into bitcoin overnight, after being approached by an analyst via social media platform Twitter. On Sunday, Musk was addressed directly by bitcoin proponent and MicroStrategy founder Michael Saylor. Saylor advised the Tesla CEO to buy a significant amount of bitcoin, claiming it could earn billions for Tesla’s shareholders.

He also claimed other major US firms on the S&P 500 stock market index could follow suit and boost Bitcoin’s value further. Musk responded by asking the bitcoin enthusiast whether transactions on such a scale are “even possible”, according to reports.

Prior to this exchange, bitcoin had already jumped above $24,000 over the weekend as the cryptoasset’s mind-boggling run upwards continues. Peaking at $24,195, Bitcoin dipped back below this level in morning trading, although it remains at $23,875 per coin, equating to a return above 500% from lows.

All data, figures & charts are valid as of 21/12/2020.

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