The Market Today
Stimulus Done, What’s Next?
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
24 HOURS OF MARKET ACTIVITY
Equity Futures and Treasury Yields Little Changed as Fed Meeting Comes Into Focus: Equities struggled in Asia but gained traction as Europe opened, where a modest 0.4% gain for the Stoxx 600 was leading smaller improvements for U.S. futures. With Democrats’ $1.9 trillion stimulus bill now officially law and Americans expected to begin receiving their latest stimulus checks forthwith, the market’s focus early this week will shift to debate about how the new stimulus, alongside an improving pandemic, will affect the Fed’s updated forecasts for the economy and interest rates set for release at the Wednesday conclusion of this week’s meeting. Although the changes were small, Dow futures outpacing Nasdaq contracts continued to reflect an optimism about the economic recovery. At 7 a.m. CT, the Dow was up 0.3% while the Nasdaq had dipped fractionally below last week’s final print. Treasury yields were also little changed, although the curve between the 2-year and 10-year notes was roughly 1 bp steeper. The 2-year yield had added 0.4 bps while the 10-year yield had drifted 0.7 bps below Friday’s new pandemic high.
Empire Fed Index Shows Signs of Supply Chain Movement: The New York Fed’s March report on regional manufacturing activity beat expectations, rising from 12.1 to 17.4 on an out-sized jump in shipments. The shipments index jumped from 4.0 to 21.1, its highest level since 2018, presumably as shipping delays were unclogged by receding COVID-19 cases. Also noteworthy, the prices paid index increased from 57.8 to 64.4, its highest level since 2011.
The Next Spending (and Tax) Initiative: According to a Bloomberg News report, “President Joe Biden is planning the first major federal tax hike since 1993 to help pay for the long-term economic program designed as a follow-up to his pandemic-relief bill, according to people familiar with the matter.” The article continues by noting that the President is considering a tax overhaul as part of another spending initiative. The report indicates that some of the considerations include raising the corporate rate from 21% to 28%, reducing tax preferences for pass-through businesses such as limited-liability companies or partnerships, raising individual rates on persons earning more than $400,000, expanding the estate tax, and raising the capital gains rate on individuals earning at least $1 million. According to Bloomberg, the initiative will call for spending on “infrastructure, climate and expanded help for poorer Americans,” but will also seek “to address what Democrats argue are inequities in the tax system itself.”
ICYMI – March 12, 2021 Weekly Market Recap: Longer Treasury yields hit new pandemic highs early Monday after the Senate voted over the weekend to approve President Biden’s $1.9 trillion stimulus bill, just hours after February’s payroll report handily beat expectations. Yields, however, reversed and moved lower over the next several days, sending the Dow and S&P 500 to new all-time highs by Thursday. The drop for the 10-year yield continued through the House passing the revised stimulus agreement on Wednesday, spurred along by weaker-than-expected business confidence and a soft reading for core CPI that tabled, at least for now, concerns about faster inflation. But after tumbling initially after the ECB said it would ramp up emergency asset purchases in the weeks ahead, yields climbed sharply through Friday. Initial jobless claims beat expectations on Thursday prior to President Biden signing the stimulus bill into law later in the day. Consumer confidence accelerated more than expected in early March in the initial release from the University of Michigan on Friday, hitting its highest level since before the pandemic. For the week, the 10-year yield rose 5.9 bps, thanks to Friday’s 8.8-bp jump, to close at 1.625%, its highest level since February 12. While Friday’s jump knocked tech stocks lower again, the S&P 500 gained 2.6% for the week and closed with back-to-back all-time highs. Click here to view the full recap.