S&P 500 Wavers as Investors Await Stimulus Deal

By Mischa Frankl-Duval and Karen Langley

The S&P 500 wavered Wednesday as investors scrutinized lawmakers' progress toward a stimulus package after new data showed a pullback in retail sales.

The broad U.S. stock index was about flat, while the tech-heavy Nasdaq Composite added 0.1%. The Dow Jones Industrial Average slipped 0.3%, or about 97 points.

Data Wednesday showed that U.S. retail sales dropped a seasonally adjusted 1.1% in November from the prior month, with restaurants, department stores and vehicle dealerships reporting sharp sales declines. The November drop, along with a revision that put October sales down slightly, ended several months of growth in retail spending after sharp drops earlier in the year amid widespread business closures triggered by the pandemic.

The weak report may intensify attention on negotiations in Washington over another coronavirus relief package. Congressional leaders were closing in Wednesday on a roughly $900 billion deal that was expected to include another round of direct payments to households, The Wall Street Journal reported. The package was also expected to include enhanced unemployment insurance, among other measures.

Movement toward the fiscal-stimulus package buoyed sentiment on Tuesday, helping the S&P 500 break a four-day losing streak.

Hopes for the new stimulus package have become the latest catalyst for a market rally that has sent the S&P 500 index up 15% this year, despite the economic setback triggered by the coronavirus pandemic.

The elements expected in the package should support consumer spending, said James Ragan, director of wealth management research at D.A. Davidson.

"That ... probably leads to better GDP growth in the first quarter of 2021 than we would get if there was no stimulus," he said.

The market is largely overlooking immediate challenges to the economy, including rising coronavirus cases and fresh lockdown measures, investors said. The rollout of Covid-19 vaccines this month and the prospects of more shots being widely distributed next year have fueled bets that restrictions will be lifted, leading to a sharp economic rebound.

"For now, markets are attempting to look through this near-term period to the Garden of Eden that is a vaccinated population," said James Athey, investment manager at Aberdeen Standard Investments.

Investors will get more insights into the state of the economy when the Federal Reserve issues its latest policy statement and economic projections Wednesday afternoon. Money managers will be watching for any new guidance about how long policy makers expect to continue their current asset-purchase program, and at what pace.

"If rates are really going to stay this low for this long, if central banks are really going to support the market and are comfortable using all the firepower at their disposal, then for equity markets to be where they are isn't so crazy," said Altaf Kassam, head of investment strategy for State Street Global Advisors in Europe.

In coming weeks, any issues curtailing the rollout of vaccines, such as unexpected side effects or logistical problems, could damp market sentiment, Mr. Kassam cautioned.

"There will be bumps in the road," which could bring back turbulence to equity markets, he said. "But we do think the trajectory will be upward again next year," he added.

Shares of Tilray jumped 20% after Bloomberg News reported that the company is in advanced talks to merge with Canadian cannabis company Aphria. If the two merge, the combined company could be the largest marijuana producer in Canada.

Overseas, the Stoxx Europe 600 index rose 0.8%. Surveys of purchasing managers showed that Europe's economy steadied in the early weeks of December as governments eased some restrictions on the services sector and factory output continued to increase. Businesses were encouraged by the prospect of a widespread deployment of effective vaccines in 2021, and cut jobs at the slowest pace since the pandemic began.

In Asia, most equity benchmarks ended the day on a high note. Hong Kong's Hang Seng Index climbed almost 1%, while Japan's Nikkei closed 0.3% higher. The Shanghai Composite Index was relatively flat.

Write to Mischa Frankl-Duval at [e-mail] and Karen Langley at [e-mail]

(END) Dow Jones Newswires

12-16-20 1432ET