Investors are also primed for more coronavirus aid after Senate Majority Leader Mitch McConnell said Thursday that he aimed to pass a stimulus package before the end of the year, contrasting with pre-election comments that a deal should wait until 2021.
“A package completed by the end of the year would exceed investor expectations and greatly reduce near-term economic risks,” UBS analysts said in a report on Friday.
While that package will likely be a lot smaller than the $2 trillion plan touted by Democrats, markets are drawing comfort from the fact that the US economy has been expanding for the past several months.
“Unemployment is down, job openings have bounced back, home sales are robust, and corporate profits have clearly turned the corner,” Nicholas Colas, co-founder of DataTrek Research said in a note.
The big caveat: While activity has picked up in major economies following historic contractions in the second quarter, the recovery is slowing and there are still major risks to the outlook.
The pandemic is expected to cause lasting damage to the labor market, even as several European governments extend wage support programs into next year. “There are risks that jobs and incomes will be lower than they were before Covid for some time,” the Bank of England said in a statement Thursday as it announced even more stimulus.
In the United States, where coronavirus case numbers are rising at an alarming rate, the recovery is also running out of steam. Some 638,000 jobs were added in October, but the country is still down 10 million since before the pandemic began.
While there may be less public support for indiscriminate lockdown policies in the United States, the rise in infections will at the very least keep a lid on business and consumer confidence, weighing on the economy.
Fourth quarter US GDP is closer to tipping back into negative territory “than is comfortable,” said Colas of DataTrek Research. “Markets are OK with that for now, but further weakness could change their tune.”
Disney takes stock of a damaging year
Disney reports its fourth-quarter and full-year earnings on Thursday, bringing an end to one of the worst fiscal years in its nearly 100-year history, reports my CNN Business colleague Frank Pallotta.
What’s happening: Disney’s media empire has been hobbled by the coronavirus pandemic. Its parks and resorts were closed for months, its productions were halted and blockbuster films like Marvel’s “Black Widow” were delayed until next year.
The company’s third quarter was brutal, ending with a net loss of nearly $5 billion. Disneyland remains closed in California and the company has temporarily shut its park in Paris to comply with lockdown measures.
Disney is laying off 28,000 US employees at its parks unit and has unveiled plans to reorganize its entertainment division around streaming, primarily the Disney+ service, which has been a huge bright spot this year.
Shares in Disney are down roughly 12% so far this year.
Stock insight: Investors and media observers will want to know just how bad the damage was for Disney this year. They’ll also be keeping an eye out for any numbers on its “Mulan” Disney+ release and details on how the media juggernaut plans to rebound next year.
Wednesday: Singles Day in China; OPEC monthly report