The Market Today

ADP Shows Better January Jobs but a Long Road Ahead

by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)

Stimulus Talks Just That, as Democrats Move Towards Reconciliation for Larger Spending Package: Despite both sides indicating a Monday meeting between President Biden and 10 Republican Senators was productive, Tuesday’s headlines indicated the meeting produced little more than pleasantries. The White House press secretary said the president’s goal for the next round of stimulus was unchanged at $1.9 trillion and indicated he approved of efforts from Democratic leadership to move stimulus forward through the budget process. Echoing that sentiment, Senate Majority Leader Schumer said the president told Democratic Senators that Republicans’ counterproposal was “way too small” and was on board with using reconciliation to provide a larger deal. However, a White House spokesperson admitted that process could be lengthy and it could still run into unexpected roadblocks. Senator Manchin, a moderate Democrat whose support is required for using reconciliation, said he supports a bipartisan process in deciding on the next aid bill.

Vaccine News: Oxford said its joint vaccine with AstraZeneca was 76% effective after a single dose and 82% effective following the second dose given three months later. Sweden and France said they wouldn’t recommend the shot for anyone 65 years old or older. Germany’s Merkel said every citizen should be able to get a vaccine by September and an EU official said deliveries of the Johnson & Johnson vaccine should begin in early April. Away from the major shots, The Lancet, a popular medical journal, said Russia’s Sputnik vaccine appeared to be 91.6% effective in phase three trials.

Virus Restrictions: Scotland tightened restrictions beyond those implemented across the rest of the U.K. through at least the end of the month. The Netherlands also lengthened their lockdown through March 2.


Stocks Climb Again as Retail Pressure Eases and Democrats Push Forward with Plans for Large Stimulus Package: While a stalemate on a stimulus compromise might normally stir market fears, a Democrat-controlled government could mean stalled talks result in bigger spending. It’s unlikely to strengthen any relationships across the aisle, but Democrats continued to move forward Tuesday, reportedly with the president’s support, with a plan to use the reconciliation process to pass the administration’s $1.9 trillion package without Republican support. The developments were cited as a contributing factor to the S&P 500’s 1.4% gain and the Dow and Nasdaq’s 1.6% rallies. Financials and industrials led all sectors higher and tech stocks received a boost from Amazon and Alphabet prior to both companies posting stronger-than-expected quarterly results after markets closed. Diminishing pressure from the army of retail traders that had targeted short hedge fund positions also assisted with the increased optimism. Shares of GameStop slumped 60% Tuesday to $90, down 75% from last Wednesday’s peak near $350. Treasury yields rose, albeit modestly so, with the 10-year yield closing up 1.7 bps at 1.10%.

Prior to Wednesday-morning U.S. economic reports, the weekly market optimism remained evident overnight but was somewhat more subdued. Most world equity indices were higher, with a couple of outliers in either direction. Chinese stocks slipped after a services PMI dropped more than expected to a nine-month low of 52. Italian stocks rallied 2.6%, well clear of the next best global result, as Italy’s President tapped former ECB President Mario Draghi to form a more unified government after weeks of political turmoil. Italy’s 10-year yield fell 7 bps while most longer sovereign yields rose amid the optimism. The 10-year U.S. Treasury yield was 1.9 bps higher before the ADP report and 2.9 bps higher after it topped expectations.


ADP Beats Estimates for January Jobs: The ADP employment report showed the economy added more private sector jobs in January than expected, up 174k along with a revision of December’s report from -123k to -78k.  The better January growth comes despite virus cases still rising in the early part of the month.  However, the pace will have quicken significantly going forward given that there remain 9.6mm (7.4%) private payrolls lost since last February’s peak.  Looking at the data by sector, service-industry payrolls continue to drive job gains, up 156k in the ADP report compared to the addition of just 19k goods-producing jobs.  The service sector is still missing 8.8mm (8.1%) private jobs while the goods-producing jobs are down just 810k (3.8%).  By size of company, there has been a more pronounced slowdown in the recovery of lost jobs at the largest companies dating back to September.  Companies with greater than 500 employees have recovered just 81k (0.1%) jobs, cumulatively, since September. Companies with 50-499 employees have recovered 419k (1.5%) jobs while small businesses have recovered 305k (1.0%) lost jobs.

The ISM service sector index for January is expected to pull back from 57.2 to 56.7 at 9:00 a.m. CT.  The ISM manufacturing index already disappointed expectations for the month, but remained remarkably stable given the virus and supply chain headwinds during the month.  Also on the calendar, January’s Markit services and composite PMIs will be finalized at 8:45 a.m. From the Fed, Kashkari (7:30 a.m.), Bullard (12:00 noon), Harker (1:00 p.m.), Mester (4:00 p.m.), and Evans (4:00 p.m.) are all scheduled to speak.

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