Traders are set to kick off the new year with a host of notable, and likely market-moving, events.
One of this week’s marquee events will be the Georgia Senate runoff elections on Tuesday. The results are set to cement Republican control of the Senate, with the party holding onto just a slim majority in the chamber following the November elections.
Many market strategists have so far baked into their outlooks the assumption that Republicans will maintain control of the Senate, meaning President-elect Joe Biden would face a divided Congress and political gridlock once he is sworn into office later this month. Any outcome to the contrary could pose a near-term downside risk to equities, some strategists have said.
“The composition of Congress matters in determining the latitude Biden has to enact his ideas into law,” Jason Pride, Glenmede chief investment officer of private wealth, said in a note. “If the GOP wins just one seat, they will likely stonewall some of Biden’s more ambitious proposals, but a Democratic sweep of both elections might give the incoming administration free rein on their policy agenda.”
Georgia aside, Republicans currently control 50 seats in the Senate, while Democrats control 48. This means that a Democratic victory for both seats would give the party the majority in the chamber when including Vice President-elect Kamala Harris’s ability to cast tie-breaking votes.
Polls have recently suggested both runoff races will be tight. Fivethirtyeight polling data showed that as of Saturday, Democratic challenger Jon Ossoff had a lead of just 1.2 percentage points over incumbent Republican Senator David Perdue. The data also showed that Democrat Raphael Warnock had a lead of 1.8 percentage points over incumbent Republican Senator Kelly Loeffler. The online prediction market PredictIt, however, has so far appeared to favor Republicans’s chances of holding the Senate.
A record 3 million early votes were cast in Georgia’s runoff races as of Saturday, comprising more than one-third of all registered voters in the state, according to the U.S. Elections Project. In the November presidential election, Georgia was called for Biden, after mail-in votes counted from around the Atlanta area especially helped the president-elect pull ahead, despite President Donald Trump having appeared to capture the lead on election night.
Control of the Senate will also carry major implications over the future of additional virus relief aid in the U.S. In the event of a Republican-controlled Senate, Nomura Chief Economist Lewis Alexander said he expects “little additional COVID relief beyond extending pandemic unemployment benefit programs in March.”
“Moreover, Biden’s expansive $2tn infrastructure agenda — centered on mitigating climate change and promoting racial, income and opportunity equality — is very unlikely to pass in the form proposed on the campaign trail,” he added. “Instead, we would expect a much more modest $300bn infrastructure package, focused primarily on shoring up surface transportation, in H2 2021,” he added in a note published Wednesday. “Finally, Republican control of the Senate makes any increase in taxes extremely unlikely.”
Meanwhile, “Democrats winning both seats on Jan. 5 would likely result in substantially more fiscal stimulus in 2021, less partisan gridlock over budget and debt limit issues, and an opportunity for Biden to enact more of his overall agenda,” Alexander said.
December jobs report
The December jobs report is set to give a final assessment of the labor market in 2020, and will likely reinforce the slowing momentum seen in the economic recovery before Congress’s latest $900 billion stimulus package was signed into law.
Consensus economists expect that just 50,000 non-farm payrolls were added back to the economy in December, after 245,000 were added in November. This would mark the slowest pace of payroll gains since April’s record decline, and a sixth straight month of decelerating improvements in the labor market. The unemployment rate also likely ticked up a tenth of a percentage point to 6.8%.
Outside of the consensus expectation, some individual economists anticipate the economy actually lost payrolls for the first time in eight months in December, as a jump in COVID-19 cases, more stay-in-place orders and winter weather sparked a wave of layoffs and weighed on hiring.
“Broadly speaking, the subdued pace of hiring seen in recent months stems, in part, from revenue pressures on businesses, but also staffing challenges as workers contend with the health risks and family care needs presented by the pandemic,” Wells Fargo economists led by Jay Bryson said in a note. “The downward pressure on payrolls is likely to continue in December. COVID infections have accelerated recently and, in response, state and local municipalities have reinstated strict lockdown and social distancing measures.”
High-frequency economic data has highlighted the strain to the job market. Weekly initial unemployment claims spiked to nearly 900,000 during the week ended Dec. 12, according to the Labor Department's non-farm payrolls survey, and have remained elevated at more than 800,000 for the majority of December.
“With the information we have to date, we look for a negative non-farm hiring print in December, which if realized, would suggest there is downside risk to near-term GDP growth prospects,” Bryson said.
As of November, the U.S. economy was still 9.8 million jobs short of its pre-pandemic levels in February, with the leisure and hospitality industries left with the most ground to regain. These services-based industries were likely again the hardest-hit in December, given their outsized exposure to virus-related restrictions.
“We think the leisure and hospitality sector could be impacted more noticeably by the virus than some other areas, and we look for employment in this grouping to fall by close to 100,000 in December,” JPMorgan economists led by Bruce Kasman wrote in a note. “We also look for a decline in retail employment in December. For the private sector overall, we forecast that employment was basically unchanged between November and December.”
Economic Calendar
Monday: Markit US Manufacturing PMI, December final (56.3 expected, 56.5 in prior print); Construction spending, month-over-month, November (1.0% expected, 1.3% in October)
Tuesday: ISM Manufacturing, December (56.6 expected, 57.5 in November)
Wednesday: MBA Mortgage Applications, week ended January 1 (0.8% during prior week); ADP Employment Change, December (50,000 expected, 307,000 in November); Markit US Services PMI, December final (55.3 expected, 55.3 in prior print); Factory orders, November (0.7% expected, 1.0% in October); Durable goods orders, November final (0.9% expected, 0.9% in prior print); Durable goods orders excluding transportation, November final (0.4% in prior print); Non-defense capital goods orders excluding aircraft, November final (0.4% in prior print); Non-defense capital goods shipments excluding aircraft, November final (0.4% in prior print); FOMC meeting minutes
Thursday: Challenger job cuts, year-over-year, December (45.4% in November); Initial jobless claims, week ended January 2 (787,000 during prior week); Continuing claims, week ended December 26 (5.219 million during prior week); Trade balance, November (-$67.0 billion expected, -$63.1 billion in October); ISM Services index, December (54.5 expected, 55.9 in November)
Friday: Change in non-farm payrolls, December (50,000 expected, 245,000 in November); Unemployment rate, December (6.8% expected, 6.7% in November); Average hourly earnings, month-over-month, December (0.2% expected, 0.3% in November); Average hourly earnings, year-over-year (4.5% expected, 4.4% in November); Wholesale inventories, month-over-month, November final (-0.1% expected, -0.1% in prior print); Consumer credit, November ($8.5 billion expected, $7.228 billion in October)
Earnings Calendar
Monday: N/A
Tuesday: N/A
Wednesday: N/A
Thursday: Constellation Brands (STZ), Walgreens Boots Alliance (WBA) before market open; Micron Technologies (MU) after market close
Friday: N/A
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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