Does another wave of COVID-19 mean good news or bad news for the stock market?

Stock indexes remain at or near record territory with the Nasdaq squeezing in a new all-time closing high to end last week. This week is a short one for Wall Street with U.S. stock and bond markets closed Thursday for Thanksgiving, and shortened trading sessions on Friday.

The holiday-shortened week could see some added volatility due to lower trading volumes with many investors taking added time off.

Covid cases

The week is starting with Covid-19 back in the major headlines as several countries in the EU reinstate lockdowns to varying degrees due to a surge in cases. That's obviously a worry for the economic recovery in Europe as well as some multinational companies, particularly airlines. However, some Wall Street insiders point out that the resurgence of coronavirus and related restrictions will likely make it more difficult for the European Central Bank to justify dialing back its supports in the near term. That in turn could mean less pressure on the U.S. Federal Reserve to keep pace with other global central banks that have already begun moderating their stimulus measures.

So does another wave of Covid mean good news or bad news for the stock market?

The U.S. Fed on Wednesday will release the "minutes" of its November policy meeting at which the central bank decided it would start trimming its monthly asset purchases. Investors will be looking for clues as to what might prompt the Fed to accelerate its timeline for ending those purchases and lifting interest rates. Several Fed officials last week indicated that they were open to a faster "taper" pace than the central bank is currently signaling, pointing to not just rising inflation but also signs of accelerating economic growth.

Keep in mind, investors are also still waiting on a decision from President Biden on whether he will nominate current Fed Chair Jerome Powell for another term. The top alternative is considered to be current Fed Governor Lael Brainard who most on Wall Street consider closely aligned with Powell in her thinking, if maybe slightly more dovish. there were headlines circulating this weekend that Biden was praising Powell several times so many are thinking he gets the nod this week.

Data to watch

A slew of economic data scheduled for release this week will provide updates on several areas of the U.S. economy and current inflation trends. Investors are particularly anxious to see the PCE Prices Index on Wednesday which is expected to show another month of inflation acceleration.

Today, Existing Home Sales are expected to come in flat for October with the sales pace maintaining an annual rate of around 6.2 million. However, prices are expected to climb for the 116th month in a row. The median price for single-family homes increased +13.8% year-over-year to $359,700 in September. On the earnings front, Q3 results are mostly wrapped up with growth for S&P 500 companies right at +40% versus expectations for growth of +27% back at the end of September.