We feared that there would be year-end profit-taking in currencies this week as the virus mutation and lack of Brexit progress haunts the markets. But so far, we haven’t seen any evidence of those risks turning into fear. Stocks resumed their rise and currencies followed suit. A large part of that has to do with medical experts assuring the general public that there’s no reason to believe the vaccine won’t work on the new strain, which doesn’t appear to be more deadly. However, the U.S. stimulus package still hasn’t been passed. President Donald Trump vetoed the agreement, demanding bigger checks for Americans. The House responded quickly with plans to bring to the floor legislation that would provide $2,000 direct payments, a number Republicans vehemently oppose. It’s not clear how this will be resolved, but the longer this dance drags out, the greater the risk of a sell-off in stocks next week.
Stocks do not always sell off during the last two weeks of the year. In fact, in the last 15 years, it only dropped nine times. And when they declined, the sell-off typically began after Christmas. This means there’s still a chance of a year-end sell-off, especially after the big runs in currencies and equities this year. With that said, the post COVID-19 recovery should be very strong, so even if there is a sell-off it may be limited.
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