The Market Today

Fed Expected to Hold; White House Releases Next Economic Proposal


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

FOMC Expected to Change Language but Hold Policy Steady: Today’s economic calendar is packed.  The Fed will conclude their two-day FOMC meeting with an Official Statement at 1:00 p.m. CT followed by a press conference with Chair Powell at 1:30 p.m.  The fed is expected to hold policy steady for the time being, although there will be some necessary changes to the Statement.  Conditions have changed, primarily for the better, since their last meeting six weeks ago (see the Chart of the Day for our Federal Reserve Scorecard).

American Families Plan Details Unveiled: President Biden will address Congress Wednesday evening in a televised speech aimed primarily at selling his recent stimulus proposals. In late March, President Biden proposed the American Jobs Plan, the first half of his Build Back Better initiative, which seeks to spend $2.25 trillion on U.S. infrastructure. Reports overnight indicate the second part of the broader initiative, the American Families Plan, will request $1.8 trillion in spending and tax credits focused more on American families. According to reports, some of the key details include: $500 billion split evenly between programs to fund child care for lower-income families and offer paid family and medical leave; $200 billion for free universal preschool for 3- and 4-year olds; roughly $300 billion to make college more accessible, including $109 billion to make two years of community college free for all students; extension through 2025 of the fully refundable child credit that was expanded in the American Rescue Plan to $3,600 for kids under six and $3,000 for those six and older; $200 billion for tax credits to individuals that purchase health insurance on their own.

To pay for the plan, which the administration says will occur fully over 15 years, the top personal rate on ordinary income would be raised from 37% back to 39.6%. The president has said no one making under $400,000 would see their taxes go up. As previously reported, those making more than $1 million would also pay capital gains taxes at the higher ordinary rate (plus an Obamacare surcharge), up from the current 20%. The step-up basis provision for inherited assets would be removed. The carried interest tax provision affecting alternative investments would be repealed. And more funding would be provided to the IRS to strengthen audit capabilities, aimed at increasing collection rates. The proposal does not appear to address the cap on state and local taxes.

Politico Says Unlikely to Become Reality: According to Politico, “Biden going huge flips the script on President Barack Obama going relatively small in 2009. … But people close to the White House know getting this level of change done with a vanishingly small margin in the Senate is pretty much impossible. Moderate Democrats like West Virginia’s Joe Manchin won’t get behind all of it.”

Corporate Earnings: Apple, Facebook, Ebay, Grubhub, Ford, and many others, are scheduled to report earnings today.  President Biden is scheduled to deliver his first State of the Union address at 8:00 p.m. CT.

Goods Trade Volume Grows but Deficit Does Also: Economists expect the economy grew 6.8% in 1Q.  March’s advanced goods trade balance data, however, show the potential for a larger drag on the headline figure than expected.  The goods trade deficit increased $3.5 billion as imports continued recovering faster than exports.  Imports rose $14.9 billion while exports rose $11.4 billion.  On a positive note, total trade increased 7.5% for the month and is now well above the pre-virus peak.

 

CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)

U.S. Vaccines: President Biden touted the 215 million vaccine shots given since January and announced that 67% of seniors had now been fully vaccinated. White House adviser Fauci said mRNA and other vaccines appear to provide good protection against the B.1.1.7 variant (U.K strain). The CDC updated its guidance to indicate that fully vaccinated individuals could go maskless for certain outdoor activities and small indoor gatherings with other fully vaccinated persons. However, the group’s director said they still recommend that the unvaccinated limit interactions. The CDC also noted that two new clotting cases related to the Johnson & Johnson vaccine had been identified.


24 HOURS OF MARKET ACTIVITY

10-Year Leads Treasury Yield Jump that Pushes 2-Year Yield to Five-Month High

Tech stocks fell Tuesday ahead of earnings announcements from Microsoft and Alphabet (Google) after the bell and from other major players throughout the rest of the week. Rising Treasury yields also applied pressure to the sector. The Nasdaq fell 0.3% while the Dow and S&P 500 fluctuated to end almost flat. While tech was a drag on the S&P 500, more economically sensitive sectors provided an offsetting boost. Energy companies led those that rose as crude prices rose more than 2%, despite OPEC confirming it will gradually increase output amid improving global demand. Industrials also closed in positive territory, largely on a pop in shares of UPS following a sizeable beat of revenue and earnings expectations. Supporting the financials sector, Treasury yields jumped and the curve steepened. The 10-year yield rose into and fell out of a steady 7-year auction. However, the benchmark note hit new highs in early afternoon after breaking back above 1.60%; the level has recently been a technically interesting mark that has drawn attention. The 10-year yield ended 5.5 bps higher at 1.62%, a nine-day high, while the 2-year yield added 1.0 bps to 0.18%, closing at its highest level since November.

The 2-year yield had edged lower early Wednesday, but longer Treasury yields continued higher after the overnight release of details from President Biden’s American Families Plan and prior to the Fed’s afternoon policy announcement. The 10-year yield had added 1.3 bps to 1.63% at 7 a.m. CT. While both company’s beat revenue and earnings estimates, shares of Microsoft were lower in the pre-market session while Alphabet shares jumped. More broadly, stock index futures were modestly weaker with Facebook and Apple scheduled to report results after today’s market close.


NOTEWORTHY NEWS

Consumer Confidence Soared in April on Substantially Stronger Current Assessment: Headline confidence jumped from 109.0 in March to 121.7, easily exceeding the 113.0 expected and marking a new high for the pandemic. After April’s gain, confidence has recovered 36 of the 46.9 points that were lost from February to April of last year. Current business conditions saw a net 10.3-point improvement while the labor market differential, which gauges consumers’ perceptions of employment opportunities, jumped 16.7 points to a new pandemic high. While additional stimulus, rising vaccinations, and continued economic re-opening clearly had a positive impact on near-term consumer sentiment, the six-month outlook saw only slight further improvement. Encouragingly, however, the net number of consumers expecting their incomes to be higher rose to a new pandemic high. Notably, one-year inflations expectations were unchanged at their highest level since 2008.


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