U.S. Stocks Waver as Investors Await Stimulus Deal

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. The decline marked the first month-over-month drop since April.

The weak report may intensify attention on negotiations in Washington over another coronavirus relief package. Congressional leaders were closing in on a deal Wednesday that was expected to include another round of direct payments to households, The Wall Street Journal reported.

Movement toward a fresh fiscal-stimulus package buoyed sentiment on Tuesday, allowing the S&P 500 to break a four-day losing streak.

Hopes for the new stimulus package have become the latest catalyst for a market rally that has sent the S&P 500 index up 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 largely overlooking 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.

Investors will get more insights into the state of the economy when the Federal Reserve issues its latest policy statement and economic projections Wednesday afternoon. Money managers will be watching 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.

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.

Shares of

Tilray

jumped 19% 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.

Overseas, the Stoxx Europe 600 index rose 0.4%. 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.

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.

—Karen Langley contributed to this article.

Write to Mischa Frankl-Duval at Mischa.Frankl-Duval@wsj.com