There is record amounts of cash sitting in checking accounts of American households—and for optimistic investors, it’s just one more reason the stock market should keep pushing higher. Unfortunately, that sounds better in theory than in practice.
There is currently nearly $16 trillion held by U.S. households, a record. At first glance, that sounds like a lot of money just waiting on the sidelines, ready to be put to work in the market. Investors, after all, hate missing out on rallies, and fear of missing out can push investors to act.
That isn’t the conclusion Citigroup strategist Tobias Levkovich draws from cash balance data, however. He notes that the U.S. has more households than it did 20 years ago, while the economy and household wealth typically grows over time.
So while the total has grown, cash balances as a percentage of stock market value and of household assets look low. In fact, stockholdings as a percentage of household assets are at a 50-year peak and have surpassed even dot-com era levels.
There are a lot of reasons stocks can keep rising—cash on the sidelines doesn’t appear to be one of them.
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Most of California Is Back in Lockdown as Cases Keep Surging
Some 33 million Californians, or about 85% of the state’s population, are now under strict new measures meant to reduce the spread of Covid-19 after a stay-at-home order went into effect Sunday night in Southern California and the San Joaquin Valley.
- The new restrictions come as cases continue to spike well above 200,000 a day in the U.S., with more than 2,000 Covid-19 deaths a day, according to data compiled by Johns Hopkins University.
- President Trump’s personal lawyer, Rudy Giuliani, has tested positive for the virus as well, the president announced on Twitter, adding, “Get better soon Rudy, we will carry on!!!” He was admitted to a Washington, D.C., hospital Sunday.
Covid-19 vaccine will likely get regulatory approval this week, Health and Human Services Secretary Alex Azar said. The New York Times reported Sunday that Xavier Becerra, currently California’s attorney general, will be President-elect Joe Biden’s nominee for health secretary, to succeed Azar, if confirmed.
- Limited vaccinations are likely to begin late this week, and many nursing home residents could receive them before the new year. However, it could take until June for most Americans to get the vaccine, the head of Operation Warp Speed, Dr. Moncef Slaoui said.
What’s Next: The U.S. is staring down a dark winter that will be “the worst event that this country will face,” White House Coronavirus Task Force coordinator Dr. Deborah Birx said Sunday.
Airbnb and DoorDash’s Blockbuster IPOs Are Coming This Week
Two big startups whose business models have been tested in very different ways during the Covid-19 pandemic are set to go public this week. Airbnb, the home-rental company, is planning to boost its IPO range to between $56 and $60 a share, from $44 to $50, The Wall Street Journal reported. DoorDash, the food delivery company, could raise as much as $3.1 billion.
- Because Airbnb specializes in renting private vacation homes, it has been able to bounce back quickly, and in some locations, thrive, during the continuing Covid-19 pandemic, as travelers shy away from hotels and take trips closer to home.
- Airbnb is seeking a valuation as high as $42 billion. But the company has a strong market position, a durable brand and the opportunity for growth during a post-vaccine tourism snapback, Barron’s Andrew Bary noted.
The $37 billion valuation DoorDash is seeking would put it roughly in line with that of
Chipotle Mexican Grill.
The company has seen demand for its services skyrocket during the pandemic, as customers stayed away from eating physically in restaurants and many restaurants pivoted to delivery to stay afloat.
- For the first nine months of 2020, DoorDash revenue was up 226% from the same period in 2019 and moving quickly toward profitability. It’s growing about twice as fast as Uber’s food delivery business and the company claims to have about half the overall U.S. food-delivery market.
What’s Next: While there is likely another leg of growth for Airbnb as the pandemic wanes, the risk for investors with DoorDash is that its rapid period of growth will not be sustained as the world returns to normal.
Crunchtime for EU-U.K. Talks With Trade Deal Still Elusive
Negotiations between Britain and the European Union on their post-Brexit trade relationship were still in a standoff Monday, with conflicting leaks from both sides ahead of a crucial summit of European leaders later this week.
- Preparations for a disorderly exit of the U.K. from the European single market in just 24 days were being ramped up even as voices in both camps were still expressing hope that a deal is still possible in time to be ratified before the end of the year.
- EU negotiator Michel Barnier was “rather downbeat” at the prospect of a deal as of Monday morning as he shared coffee with EU diplomats, a source quoted by Reuters said.
- Sterling fell 1.2% on Monday against the euro and 1.3% against the dollar as investors began to focus on the possibility of a “no-deal” Brexit.
- A deal might be in sight on the issue of fishing in U.K. waters, according to the Guardian, but the EU and Britain remain far apart on their most serious difference—can Britain abide by a “level playing field” as the price of benefiting from tariff-free access to the EU market?
- The U.K. government has begun assessing the consequences of crashing out of the EU at the end of the month in a document detailing the “reasonable worst case scenario planning assumptions,” according to ITV.
What’s Next: The EU can concede on fisheries but remains steadfast on its demand to see U.K. abide by basic rules to outlaw unfair competition. In any other trade talks, a deal would have been struck long ago, based on economic realities. But Brexit for the U.K. is also a matter of political symbolism.
European Union Deadlocked on Stimulus as ECB Prepares Bond-Buying Boost
Hungary and Poland are still vetoing implementation of the EU’s €750 billion ($908 billion) fiscal stimulus package agreed on last July, as the European Central Bank is likely to ease monetary policy further later this week.
- EU leaders will gather in a summit Thursday to find a solution to the veto exercised by Hungary and Poland against both the pandemic-focused fiscal package and the EU’s next seven-year budget.
- The two governments are demanding changes to rules making disbursement of the funds to member states conditional on abiding by rule-of-law principles, after raising criticism against their recent laws subjecting the countries’ judiciaries to political control.
- The ECB’s ruling body will gather on the same day to publish the result of a review of its monetary policy tools, and is likely to announce both a further increase of its asset-busing program and easier financing conditions for eurozone banks.
- According to most analysts, the ECB could add up to €500 billion to its existing coronavirus-specific quantitative easing program, taking it to a total €1.85 trillion.
What’s Next: The two Thursday meetings will throw a new light on the difficulty of a European coordinated fiscal response to the pandemic, not a single cent of which has been spent six months after the package was officially approved. The ECB remains the main architect of the response to the Covid recession.
What the Economy and Markets Could Look Like After a Covid-19 Vaccine
In less than a year, if all goes well, we may live in a post-Covid-19 world. Barron’s spoke to a dozen top thinkers about what’s ahead in markets, politics, and public policy to get a better idea of what that might look like.
- Behavioral economist Richard Thaler thinks overconfidence will be a stumbling block in post-vaccine investing. For individual investors, the best strategy is benign neglect,” he said. “Create a sensible long-term portfolio, and then ignore it.” Policy makers in Washington, D.C., should focus on reducing inequality, he argued.
- Karen Karniol-Tambour, director of investment research at Bridgewater Associates, thinks that domestically, the biggest issues will be whether monetary policy can work in coordination with fiscal policy. “Politics matters more to the market because fiscal policy is the most powerful lever,” she said.
- Economist and public policy expert Stephanie Kelton thinks that optimism rooted in accumulated household savings during the pandemic is misguided. We need more fiscal stimulus and that means Congress. “You can do some things through executive action,” she notes, “but I don’t know if you can do enough without action from Congress.”
What’s Next: “The thing that 2020 forces us to come to terms with is that this wasn’t a black swan,” Columbia University history professor Adam Tooze says. The good news is, “we can easily fund a massive war chest of biotech, pharmaceuticals, and such” to be better prepared for the next pandemic.
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—Newsletter edited by Anita Hamilton, Stacy Ozol, Ben Levisohn, Matt Bemer