This week to decide the market for Kim Hyun-seok's Wall Street Now end of this year

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Last week, the New York Stock Exchange had a relatively quiet week. On a weekly basis, the Dow fell 0.6%, while the S&P 500 and NASDAQ fell 1.0% and 0.7%, respectively. As such, the leading index moved within 1% and the weekly fluctuation was only 2.2%. It was very calm considering that this year’s index jumped more than 1% per day to 109 trading days.

[김현석의 월스트리트나우] This week to decide the market market at the end of the year

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A Wall Street official said, “This year’s book is closed for the holiday season, and the deal is shrinking because there are many closings (where the deal has ended).” In addition, the reality is deteriorating to the extent that the number of corona deaths exceeds 3,000 per day (3,309 as of 11 days).

In fact, the stock market on Friday the 11th also ended in mixed tax. The Dow rose 0.16%, but the S&P 500 fell 0.13% and the Nasdaq fell 0.23%. This is because the US Congress’s stimulus negotiations and the UK-EU’s negotiations on Brexit-related future relations are increasing without a conclusion.

However, this week’s market may be different from last week. A very important event is scheduled every day. There are strong observations that this week’s event will determine the year-end market. Let’s summarize this.

◈ 14 days

① Election of the US Presidential Electoral Corps

Electoral corps elections are held to elect the next president of the United States. The 538 electoral corps gathers to vote by state. Voting begins at 12:00 noon or 2:00 p.m. and ends within an hour. According to the current state-by-state counting certification results, Joe Biden has secured 306 people, well over 270, and President Trump has secured 232 people.

In the past, voting for the presidential electoral corps was a catastrophe. But with Trump’s disagreement this year, it is seen as an important step in determining a legitimate winner. It is possible that some electors, so-called’faithless electors’ may vote for a candidate other than the one who won the state, but very rarely. In addition, the US Supreme Court unanimously ruled in July that the electoral team must follow state election results and not disagree.

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If the electoral vote ends as expected, Trump’s dissatisfaction will be markedly lost.

② Georgia senator runoff voting begins

Georgia’s pre-voting for two seats of the Senate begins on the 14th. Georgia is a state that has had no Democratic senator over the past 20 years. However, in this year’s presidential election, it won Biden-elect. Recent polls show that Democratic candidates John Osoff and Rafael Warnock are somewhat ahead of Republican candidates David Purdue and Kelly Roppler.

However, it is difficult to predict the outcome because it is unclear whether people will vote in this election as much as the last presidential election. Wall Street’s basic outlook is for the Republican Party to secure at least one seat and maintain the Senate majority.

If Democratic candidates Osov and Warnock win, Democrats and Republicans each have 50 seats in the federal Senate. In this case, Vice President-elect Kamala Harris could exercise the casting boat, which would in effect allow Democrats to lead Congress. It means that you can promote tax increases. A Wall Street official said, “Even if the Democratic Party wins the second seat in Georgia, there is a political burden, so it is not expected to promote tax increases through casting boats, but it may be possible to strengthen corporate regulations such as energy finance and expand fiscal spending.” .

③ Start vaccination

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On the 11th, the U.S. Food and Drug Administration (FDA) granted emergency use approval for Pfizer’s vaccine. Accordingly, Pfizer’s vaccine will be distributed throughout the United States in earnest from the 14th. The distribution volume is 2.9 million times, and it will be delivered to 145 places on 14 days, 425 places on 15 days, and 66 places on 16 days at a time lag. The amount of vaccine will be given to medical workers such as doctors and nurses from this day, as well as those in nursing homes.

The initiation of vaccination in the United States may lower the risk of a decline in the stock market.

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◈15~16 days

On the 15th and 16th, the US Central Bank (Fed) will hold the last Federal Open Markets Committee (FOMC) this year. Results will be released at 2pm on the 16th and 4am on the 17th Korean time.

The market is looking to see if the Fed will change its bond buying policy. Some expect to increase the purchase volume, which is currently $120 billion ($80 billion government bonds and $40 billion mortgage), or prolong the maturity of the bonds they buy.

Employment, which is the most important indicator of the Fed, is rapidly worsening than expected, with an increase of only 245,000 in November, and the consensus is being delayed as the U.S. Congress could not narrow the disagreement over an additional stimulus for Corona 19. The need to compensate for the possibility of market fluctuations caused by the five emergency loans that end in words is presented as evidence.

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However, there are more observations that the Fed will not take any action. This is because the November FOMC minutes stated that “a few participants are reluctant to change their asset purchase guidance in the short term.” Also, although government bond yields are on the rise, they are still stable below 1%. Financial markets are that the Fed is stable enough with the current monetary policy.

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Because market forecasts are mixed, there is room for the market to react to whatever decision the Fed makes; some argue that if the Fed doesn’t act at this meeting, interest rates could jump. Priya Misra, head of global interest rate strategy at TD Ameritrade, said, “If the Fed closes the meeting in December with nothing at all, interest rates can rise to 1.20% to 1.25% in no time.”

A Wall Street official said, “It is expected that the Fed will provide clear guidance on the continuation and termination of asset purchases through forward guidance,” he said. “It is difficult to expand the purchase scale now, but we do not expect the Fed to ignore market expectations.” .

◈17 days

The FDA will hold an advisory group meeting to discuss whether Modena will give emergency approval for the vaccine under development. Asking for approval in this discussion, Modena’s vaccine will also be approved this week.

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Currently, the expectations for a vaccine from Modena are very high. This is because distribution is easy because it does not need to be stored below -70 degrees Celsius like Pfizer’s vaccine. Modena says it will be able to supply 20 million units within the year.

Because of this, Modena’s stock price has more than doubled since the release of vaccine results in November. Another analysis suggests that vaccine sales for Pfizer and Modena could exceed $30 billion. Although planned, the actual vaccination can once again stimulate positive investor sentiment that the virus can be controlled.

◈18 days

① Four Witch Day

The 18th is the so-called’Four Witch’ Day’, when the maturities of stocks and index futures and options overlap. As individual stock option trading has recently exploded to an all-time high, market volatility may increase on this day due to stock market movements earlier this week.

② One day before Tesla’s incorporation into the S&P 500 Index

Tesla is on the S&P 500 index as of the 21st. The 18th is the last trading day ahead of the transfer. From the perspective of the Passsis Fund, in theory, adding it at the closing price on this day is the most effective in keeping up with the index.

This week to decide the market for Kim Hyun-seok’s Wall Street Now end of this year

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Photo = AP

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When Tesla is incorporated, it will have a 1.5% weight in the index. According to S&P Global, funds currently benchmarking the index have assets of more than $11.2 trillion and only index funds that follow the index amount to about $4.6 trillion. Tesla’s floating stocks (excluding Elon Musk’s stake) are worth $437.0 billion, and the trading demand of index funds following the S&P 500 could reach $72.7 billion.

When it comes to the number of shares in circulation, it almost exceeds 15%. There is even an analysis that the incorporation of Tesla, which is not properly profitable, increases the PER of the S&P 500 from 22.1 to 23.5.

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Of course, buying these huge quantities won’t happen in a single day, and there will be places that don’t buy Tesla right away. “Tesla is going to be included in the S&P 500,” said Ryan Brinkman, an analyst at JP Morgan.

Securities firm Sanford Bernstein recommended selling, saying, “Considering that the market capitalization of Tesla has increased by over $200 billion since the announcement of Tesla’s incorporation on the 16th, it is highly likely that many funds have already completed repositioning (portfolio adjustments such as incorporation).” I did. In addition, the analysis of the 50 large stocks that have been included in the S&P 500 index has shown that, on average, returns have been poor for weeks or months after incorporation.

Yahoo is representative. S&P announced that it would include Yahoo in the index a week after November 30, 1999. Since then, Yahoo has risen 64% over five trading days, including a 24% a day. By December 31st, it surged 103% in one month.

However, this trend did not last long. Yahoo’s share price fell 86% in 2000, 41% in 2001, and 8% in 2001.

Adding Tesla means that you have to sell another S&P 500. The stock that Tesla is missing when it enters is Apartment Investments (AI) with a market capitalization of $6 billion. This means that there may be market volatility due to the sale of many other stocks.

③ Negotiating the stimulus plan of the US political circles

This is actually the last day for US politicians to negotiate additional stimulus measures. Both Democrats and Republicans seemed to increase the likelihood of a settlement within the last year, but they again fell into a deadlock. The Republican Party is adhering to the plan to give immunity privileges to corporations in relation to the coronavirus, and the Democratic Party is insisting on including support from state and local governments.

Congress last week extended the deadline for negotiations over the past week to pass stimulus along with the budget for fiscal 2021. But considering that next week is Christmas, it will be harder to postpone.

If the stimulus package is not concluded within this year, the financial market could be temporarily shocked. It is said that as the market has risen from the end of November to reflect the possibility of concluding stimulus measures within this year, there may be high reversal pressure. In particular, the dollar and 10-year Treasury yields could show a sharp reversal.

The market has been driven by the so-called’recovery trade’ trend, in which the so-called economically sensitive stocks and the fall and the large stocks rise due to the fall of the dollar. But if the stimulus breaks down and the dollar rebounds, this could change.

Also, I do not know when it will be concluded, but negotiations on future relations between the UK and the European Union (EU) on Brexit will continue this week. The UK and the EU set the deadline for the 13th, but they did not reach an agreement as expected. However, they decided to negotiate a little more to prevent’no deal’ Brexit.

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According to Wall Street’s LPL Research, December is the second highest-performing month of the year. But it doesn’t have a high rate of return throughout the month. The bull market begins in earnest from mid-December. I look forward to seeing that December 2020, when a lot of things have happened, will end.