The Market Today
Stimulus Approved by House; J&J Single-Shot Vaccine Approved by FDA
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Stimulus and Vaccines: Over the weekend, House Democrats passed the $1.9 trillion stimulus bill, now sending it to the Senate where the minimum wage provision is expected to be removed. U.S. health regulators granted emergency use authorization for Johnson and Johnson’s vaccine, adding a third vaccine to the distribution process.
Manufacturing PMIs, Construction Data, Fedspeak: Both the Markit (8:45 a.m. CT) and ISM (9:00 a.m.) manufacturing PMIs for February are expected to show fractional improvement. Both reports show strong levels of activity remain in the U.S. as well as globally. Also at 9:00 a.m., the January construction spending data is expected to show continued strength in residential investment. New York Fed Bank President Williams speaks at 8:00 a.m. and Fed Governor Brainard at 8:05 a.m. Regional bank presidents Bostic (Atlanta), Mester (Cleveland), and Kashkari (Minneapolis) are scheduled to speak on racism and the economy at 1:00 p.m. Investors will remain focused on any evidence that Fed officials may be alarmed at the inflation outlook or the recent rise in yields.
24 HOURS OF MARKET ACTIVITY
Equities Improve Amid Calmer Rates, Stimulus Progress, and Approval of the U.S.’s Third Vaccine: Global stocks are on the mend Monday, helped out by positive vaccine developments and another step forward in Democrats’ push for $1.9 trillion in new aid, even as the 10-year Treasury yield resumes its rise. The major equity indices retreated last week in response to a sharp increase in interest rate volatility and levels (more below). At 7 a.m. CT, the 10-year yield was up by a relatively benign 4.6 bps to 1.45%, still well below last week’s high above 1.60%, while rates in Europe had actually posted notable declines. Equities responded positively, with U.S. futures moving up by more than 1% and the major indices in Europe and Asia gaining around 1.5%. However, the firmer tone for stocks, particularly in the U.S., owes itself to more than calmer rates. Adding to the optimism were the passage of the stimulus package in the House and the emergency use approval for J&J’s vaccine. Stocks and rates have been on a climb so far this year on hopes the combination of more stimulus and a broader vaccine deployment will lead to a sustained economic recovery.
ICYMI – February 26, 2021 Weekly Market Recap: Treasury yields became notably volatile last week as one Fed official after another dismissed the risk that inflation could get out of hand. Yields have been rising in recent weeks as cases and hospitalizations have improved, the vaccine rollout has picked up more steam, and Democrats have continued to push ahead with their plans for another $1.9 trillion in additional stimulus. Fed Chair Powell told members of Congress on Tuesday and Wednesday that the outlook has improved and growth could be strong in the second half of the year. However, policy needs to remain easy because the recovery still has a “long way” to go, he said. He and others noted the significant amount of economic slack that remains should keep inflation pressures subdued, and that rising yields reflected a growing optimism around the pace of recovery. With Fed officials forgoing the opportunity to talk rates down, and House Democrats moving forward with their $1.9 trillion stimulus bill, Treasury yields’ climb intensified, reaching a fever pitch after a disastrous 7-year note auction on Thursday. At their intraday peaks, the 5-year and 10-year yields rose 25 and 23 bps, respectively. Despite erasing a good portion of Thursday’s increase in Friday trading, Treasury yields finished up on the week, led by a 15.9-bp increase for the 5-year yield to 0.73%. The 10-year yield rose 8.1 bps to 1.42%. With rates rocketing higher, the S&P 500 shed 2.5% while heavy losses for tech names dragged the Nasdaq down 4.9%. Sidelined by the significant market activity, the week’s economic data was solid. Most notably, the savings rate spiked from 13.4% to 20.5% as personal income soared 10% on a larger federal unemployment supplement and second round of stimulus checks received as part of December’s aid package. Click here to view the full recap.