The Market Today

Short-Term Economic Concerns Versus Medium-Term Inflation Fears

by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)

Stimulus Talk: Treasury Secretary Yellen on Sunday again brushed off concerns raised by some about another $1.9 trillion stimulus plan stoking unwanted inflation, saying that, “The most important risk is that we leave workers and communities scarred by the pandemic and the economic toll that it’s taken.” She went on to say, “I would expect that if this package is passed that we would get back to full employment next year.” In the Fed’s December projections, the median official forecasted unemployment to fall to 4.2% by the end of 2022 versus a full-employment estimate of 4.1%.



ICYMI – February 5, 2021 Weekly Market Recap: In the week’s most anticipated economic report, the BLS showed the pace of hiring slowed more than previously thought at the end of 2020 and remained soft to start 2021. However, stocks and yields subsequently rose Friday, capping a solid week of gains. The White House described a Monday meeting with Republican Senators to discuss their $618 billion stimulus counterproposal as productive. However, Democrats in the House and Senate, with the president’s backing, took procedural steps moving closer to using reconciliation to pass the president’s larger $1.9 trillion stimulus plan without any Republican support. While January’s slowdown in hiring could be pointed to in support of the sizable stimulus package, the reference week came before the large recent drop in cases and other data might support Republicans’ more measured amount. Unemployment declined in a stronger household report, initial jobless claims fell for a third week to their lowest level since November, and both ISM reports inspired some confidence in the outlook. Those dynamics joined with solid corporate earnings and dwindling retail pressures on shorts to hand the three major equity indices their best weeks since November. For the week, the 2-year yield ended at a record low (0.1013%) and the 10-year yield rose to a new high since March (1.164%), leaving the curve at its steepest level since April 2017. The S&P 500 rose 4.7% and ended with back-to-back record closes. Click here to view the full recap.


Market Tone Remains Firm as Investors Watch Stimulus Push: A lack of sentiment-shifting news over the weekend left last week’s positive momentum in place, with global risk assets and longer sovereign yields all continuing to push higher. Investors looked through last Friday’s disappointing U.S. hiring print and negative prior revisions to other data that provided a more positive take on the near-term trajectory of the recovery and Democrats’ push for a large stimulus package.

Monday’s firmer market footing had pushed S&P 500 futures up 0.4% to a new all-time high at 7:30 a.m. and U.S. WTI crude 1.1% higher to $57.50 per barrel, the highest level since January 2020. The 10-year Treasury yield had risen 2.6 bps to 1.19%, a new post-pandemic high, and the 30-year yield briefly broke above 2.00% for the first time since February.


Quiet Day to Kick Off Quiet Week: There are no economic reports on the calendar today.  Cleveland Fed Bank President Mester is scheduled to speak at 11:00 a.m. CT.  The remainder of the week’s calendar is also quiet with key reports on small business confidence tomorrow, CPI inflation on Wednesday, and comments from Fed Chair Powell also on Wednesday.

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