The Market Today
Bipartisan Group Pushes Back on White House Stimulus Plan
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
2021 Economic Outlook: Vaccines, Stimulus and Recovery (link): While uncertainty is commonplace in forecasting economic growth and interest rates, doing so in 2021 is uniquely challenging. The economy appears highly likely to continue its recovery from the COVID-19 pandemic and move into a period of expansion, although even this outlook could be derailed by unexpected developments with the virus. The policy implications of the 2020 elections bring about new uncertainties. One certainty for 2021, the economy is positioned to grow substantially if the damage from the virus can be limited. (January Forecast Revisions and Bloomberg Survey Results)
Regional Fed Reports: The Chicago Fed’s National Activity Index rose from 0.31 to 0.52 in December, much stronger than expected. The broad index of national economic conditions is still attempting to find its range following a historic drop and an equally historic rebound. At 9:30 a.m. CT, the Dallas Fed will release its January report on manufacturing activity in the region. After a mixed month of regional Fed reports in December, the New York and Philly indices have already kicked off 2021 with mixed messages: Philly’s index pointing to surprising strength while New York’s disappointing expectations.
Treasury Vote: Also today, the Senate is scheduled to vote on President Biden’s nominee for Treasury Secretary, Janet Yellen, at 4:30 p.m. CT.
Tech Stocks Remain Strong but Other Sectors Struggle Monday: Tech stocks remain strong on Monday after pushing the Nasdaq to a record high to end last week, as investors brace for a big week of corporate earnings, including big sector names Microsoft, Facebook, and Apple. Cyclical stocks, however, have continued to struggle and Treasury yields are lower ahead of U.S. trading amid a drop in global yields. While Nasdaq futures were up just under 1% around 7 a.m. CT, contracts on the S&P 500 were flat and Dow-linked instruments were down 0.5%. Stocks in Asia mostly rose but European indexes unwound opening gains and were broadly weaker after January economic sentiment surveys for Germany were weaker than expected. In addition to the swift schedule of corporate earnings, the week’s economic calendar is full of important reports, including a Fed meeting, and the debate on Capitol Hill about how much, if any, additional stimulus is needed is likely to roll-on.
Treasury Yields Decline to Start a Week Busy with Corporate, Economic, and Political Developments: A bipartisan group of lawmakers met with President Biden’s top economic adviser on Sunday to discuss the recently proposed $1.9 trillion stimulus package, a plan that continued to receive pushback from most Republicans on both its size and scope. While the virus situation in the U.S. has improved some after the holiday spike around the end of the year, concerns remain high about the pace of economic recovery and virus mutations that have been identified early in the vaccine rollouts around the world. France is considering returning to a nationwide lockdown and President Biden is expected to implement a travel ban Monday in response to the new virus strains, essentially cutting off travel with Europe, Brazil, and South Africa. At 7:20 a.m., the 2-year Treasury yield was flat at 0.12%, the 5-year yield was 1.1 bps lower at 0.42%, and the 10-year yield had declined 2.2 bps to 1.06%. Longer European yields were down even more, with 10-year yields in Germany and France lower by around 3 bps.
ICYMI – January 22, 2021 Weekly Market Recap: It was a busy week in Washington as Joe Biden was inaugurated as the 46th President of the United States and Democrats regained control of the Senate with the swearing in of the party’s two victors from Georgia. President Biden went to work immediately Tuesday afternoon to unwind, by executive orders and actions, several key pillars of President Trump’s governing policies. Those actions continued Wednesday with the new administration releasing a 200-page strategic plan for combating COVID-19 and announcing several additional executive actions to assist with its implementation. However, the difficulties that Democrats will face in passing their legislative agenda with the slim Congressional majorities appeared quickly. Despite President Biden’s likely Treasury Secretary, former Fed Chairwoman Janet Yellen, imploring Congress to “act big” with more support, a couple of moderate Republicans, who could be key in Senate votes on certain issues, pushed back. Both signaled that the President’s plan for $1.9 trillion in new spending, just weeks after agreeing to $900 billion in additional aid, seemed unnecessary and seemed to prefer waiting to see if incoming data shows more support is needed. Such evidence was hard to find in last week’s reports, with housing’s strength continuing, still-elevated jobless claims dropping more than expected, and preliminary PMIs showing a surprise acceleration across both the manufacturing and services sectors. Treasury yields continued to traverse a tight range and were little changed by Friday, with the 10-year yield inching up 0.2 bps to 1.09%. The major indices collectively hit records on Wednesday, although tech reverted back to leading as cyclical stocks cooled. The S&P 500 ended up 1.9% for the week while the Nasdaq jumped 4.2% and closed Friday at an all-time high. Click here to view the full recap.