U.S. Stocks Open Slightly Higher as Investors Await Stimulus Deal

By Mischa Frankl-Duval

U.S. stocks edged higher Wednesday as investors awaited progress on stimulus talks, fresh guidance from the Federal Reserve and key economic data.

The S&P 500 ticked ahead about 0.1%, signaling that the broad market gauge may climb for a second day after the New York opening bell. The Nasdaq Composite Index also gained 0.1%, while the Dow Jones Industrial Average added 3 points, or less than 0.1%.

Signs of progress toward a fresh fiscal-stimulus package buoyed sentiment on Tuesday, allowing the S&P 500 to break a four-day losing streak. Top congressional leaders signaled they were inching closer to striking a deal after a day of meetings. Senate Majority Leader Mitch McConnell (R., Ky.) said he was optimistic, fueling bets that lawmakers will craft the new aid package before the holidays and the expiration of several key aid provisions.

Hopes for the new stimulus package have become the latest catalyst for a market rally that has sent the S&P 500 index up over 14% this year, despite the economic setback triggered by the coronavirus pandemic.

"It is just another excuse for those that missed the rally, or that are bullish anyway to buy into it," said Luca Paolini, chief strategist at Pictet Asset Management. "We know that [a deal is] coming, the signals are pretty clear," he added.

The market is choosing to largely overlook 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. It is possible that "at some stage, we'll have another one of those days, another few of those days, where we see a bit of concentrated weakness as markets catch up," he cautioned.

Fresh data Wednesday showed that U.S. retail sales fell more than expected in November, declining 1.1%. Consumers have pulled back on purchases and limited holiday shopping in recent weeks as the coronavirus pandemic triggered new business restrictions, snapping a six-month stretch of retail sales growth.

Meanwhile, investors will get fresh insights into the state of the economy when the Federal Reserve issues its latest policy statement and economic projections at about 2 p.m. ET. Money managers will be watching closely 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.

Surveys of purchasing managers, which will be released starting at 9:45 a.m. ET, are likely to point to a continued expansion in the U.S., albeit at a slower pace than in recent months.

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.

Ahead of the market open, shares in Tilray rose 27% 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. Aphria's shares gained almost 7%.

Overseas, the Stoxx Europe 600 index rose 0.6%, and the euro rose 0.3% against the dollar. It earlier traded at $1.2209, its highest level since April 2018.

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.

Among European equities, Altice Europe NV jumped over 20% in Amsterdam after a vehicle controlled by founder Patrick Drahi raised its offer to take over the company following some shareholder resistance.

Shares in Galapagos fell almost 15% after its partner, Gilead, decided not to pursue regulatory approval of a drug from Galapagos for treatment of rheumatoid arthritis.

Government-bond yields in Europe continued to rise on hopes that the U.K. and the European Union will strike a post-Brexit trade deal that would bolster the region's economies.

German 10-year yields have risen faster than those in Italy this week, cutting the difference between the two -- or the spread -- to its tightest level since late January 2016, according to Tradeweb. On Wednesday, the spread tightened to 1.078 percentage points as German yields rose to minus 0.556%, while Italian yields advanced to 0.518%.

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]

(END) Dow Jones Newswires

12-16-20 0946ET