The Market Today
American Jobs Plan Calls for Hike to Corporate Tax Rate, $2.25T in Infrastructure Spending
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Pfizer announced that their respective vaccines are safe for use in children ages 12 to 15. The head of the WHO and many world leaders criticized the report organized jointly by WHO and China on the origins of the coronavirus. The report concluded that the virus most likely spread to humans from bats through an unknown intermediary and that it was unlikely to be the result of a leak from the virus lab in Wuhan. Also yesterday, Germany concluded its second assessment of the Astra vaccine banning it from use in patients under the age of 60. Fighting a renewed outbreak, Italy and Germany announced tighter quarantine rules for travelers, including those coming from other EU countries.
Stimulus Checks and Re-Opening Optimism Push Consumer Confidence Higher: Consumer confidence jumped a larger-than-expected 19.3 points in March, according to the Conference Board report, as the present situation and future expectations indices both increased by similar amounts. Likely the result of efficient vaccine rollout and re-openings, the net percentage of respondents expecting more jobs to be available over the next six months jumped 16.5 points to its second-highest level on record. However, those expecting incomes to be higher over the same period only rose 0.3 points. Presumably boosted by stimulus payments, plans for major purchases of autos, appliances, and houses also increased. Inflation expectations over the next year matched their highest reading, 6.7%, since 2008. Gasoline prices tend to drive consumer inflation expectations, although history shows that those expectations can become self-fulfilling. Overall confidence is now at the highest level of the pandemic but remains well below pre-pandemic levels.
Home Prices Continue Gains in January: Both the S&P CoreLogic and FHFA home price indices for the month of January showed further acceleration in the pace of annual home price gains. The S&P CoreLogic index increased 1.20% MoM while the FHFA index gained 1.0%. On year-over-year bases, prices were up 11.1% and 11.9%, respectively. The S&P 20-city data showed broad strength across the major metro areas. Las Vegas’s 8.5% and Phoenix’s 15.8% YoY gains bracketed the low and high sides of the metro area results.
Dallas’s Kaplan Watching Financial Market Valuations: Dallas Fed Bank President Kaplan stopped short of saying that financial valuations had gone too far, but indicated it is something he is watching closely. Kaplan said yesterday, “I’m concerned about excess risk-taking and if that risk-taking goes on too far.” He highlighted, “Equity market cap, divided by gross domestic product, that’s at a historically elevated level. Credit spreads, in the corporate bond markets, are at, relatively speaking, historically tight levels. There’s no question that financial assets, broadly, are at elevated valuation levels.” Giving one of the more hawkish views on policy, he said that he is one of Fed officials projecting the first hike in 2022.
Curve Flattens as Investors Position for Quarter-End, Spending Package, and Jobs Report: The long end of the Treasury curve flattened yesterday as investors prepared for quarter-end and speculated about the possible details in President Biden’s spending package. The prospect of a larger tax increase to offset the spending package is likely to take some steam from the inflation outlook. With the front-end remaining anchored, the 10-year Treasury yield fell from 1.76% to 1.71% and the long Bond yield dropped from 2.46% to 2.38%. The Dollar continued its 2021 trend, rising 0.4% for the day and now up 3.6% since the January 6 low. The S&P and DJIA both dropped 0.3%. For the quarter, the 10-year Treasury yield is now up 78 bps and is set to have one of its worst quarters of the past 20 years.
Build Back Better Proposal 1 – American Jobs Plan: President Biden is unveiling the American Jobs Plan today, the first part of his Build Back Better plan. Today’s plan reportedly includes $2.25T in infrastructure spending funded in part by an increase in the corporate tax rate from 21% to 28% and an increase in the global minimum tax from 13% to 21%. The spending proposals include traditional infrastructure projects as well as funding for broadband, the electrical grid, and other clean energy-related priorities. An additional spending proposal will reportedly come later in the spring which includes items such as childcare, education, and healthcare funding.
ADP Shows Faster Pace of Recovery in March but Not as Fast as Expected: The ADP Employment report showed 517k private payrolls added in March, disappointing expectations but the strongest monthly pace since September. By sector, leisure/hospitality saw the biggest recovery, adding 169k jobs, while education/healthcare added another 68k. Goods-producing jobs also posted positive results with the manufacturing sector recovering 49k jobs and construction jobs rebounding 32k. There remains 9.0 million lost private payrolls according to the ADP report, including 3.8 million leisure/hospitality jobs.
Mortgage Rates Inch Lower but Apps Drop: Mortgage applications for the week ending March 26 fell 2.2% on a 2.5% drop in refi apps and a 1.5% decline in purchase apps. The average 30-year mortgage rate fell 3 bps to 3.33%.
Pending Home Sales: At 9:00 a.m. CT, the February Pending Home Sales report is expected to show a 3.0% decline in sales during a weather-affected month.