The Market Today
Transitioning to the 46th President of the United States
by Craig Dismuke, Dudley Carter
President-Elect Biden Begins with Executive Actions: According to media reports, President-elect Biden has announced at least 15 executive actions to be taken immediately, some of which have economic implications. Biden intends to rejoin the Paris climate agreement, rejoin the World Health Organization, impose a moratorium on oil leasing in the Arctic National Wildlife Refuge, revoke the permit for the Keystone XL pipeline, pause the accrual of interest and principal payments on students loans through September, and extend moratoriums on evictions and foreclosures through March, among other priorities. According to Bloomberg News, “The incoming administration has also compiled a list of more than 100 agency actions taken during the Trump administration for review, in what could result in a massive regulatory revision. Also planned are broader measures the administration argues will assist disadvantaged Americans, including a policy to make it easier for the federal government to issue regulations.” The President-elect’s inauguration will take place at 12:00 noon ET.
Mortgage Applications Dip but Purchase Apps Remain Strong: Mortgage applications for the week ending January 15 fell 1.9% as the 30-year mortgage rate inched up 4 bps to 2.92%. Refi apps fell 4.7% after a large jump in the previous week. Purchase apps rose 2.7%, up for a second week in a row. At 9:00 a.m. CT, the NAHB homebuilder confidence index is expected to remain strong at 86.
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Monitoring the Virus Headlines: There were few meaningful headlines Tuesday related to the virus, leaving investors focused on Treasury Secretary nominee Yellen’s plans for aiding the economy (more below). As indicated in recent days, Germany finalized a plan to extend its current lockdown through February 14. Non-essential businesses will remain closed and companies are required to allow for work-from-home arrangements, when possible, until March 15. Scotland announced it too would extend its lockdown until “at least middle of February” and the Dutch government was reported to plan an announcement for tougher measures today.
Monitoring the Stimulus Headlines – Yellen Says Low Rates Mean Congress Can “Act Big” Now, Leave Fiscal Sustainability for another Day: No longer hamstrung by the desired independence of a central banker from fiscal policy, former Fed Chairwoman Janet Yellen, President-elect Biden’s nominee for Treasury Secretary, told a Senate panel that Congress should “act big” to support the economy. She said, “Economists don’t always agree, but I think there is a consensus now: Without further action, we risk a longer, more painful recession now—and long-term scarring of the economy later.” Acknowledging some conservatives’ concerns about the national debt, she noted that “it’s essential we put the federal budget on a path that’s sustainable” over the longer term. However, “Right now, short term, I feel that we can afford what it takes to get the economy back on its feet, to get us through the pandemic,” particularly because of low interest rates. “There is an advantage to funding the debt especially when interest rates are very low by issuing long-term debt,” Yellen said, later stating that her team would assess “what the market would be like” in response to a question about a 50-year bond. She said that “of course it is a risk that interest rates can rise,” but added, “The world has changed – I believe the future is likely to bring low interest rates for a long time.” She also said she would work to address China’s “abusive” economic practices, stated U.S. policy “does not seek a weaker currency to gain competitive advantage,” and said studies on higher minimum wages show negative consequences are “minimal, if anything.”
Stocks Bounced Back But Treasury Yields Were Tepid Despite More Talk of Sizable Stimulus from New Administration: Tech stocks led a bounce-back for Wall Street’s major equity indices on Tuesday as investors braced for more corporate earnings and digested Treasury Secretary nominee Yellen’s call for big stimulus. After slipping 1.5% last week, the Nasdaq rose 1.5% Tuesday and the S&P 500 gained 0.8%. The Dow posted a smaller 0.9% decline in the prior week and a more modest 0.4% recovery to start the week. The couple of U.S. banks that reported earnings before the bell both saw their shares decline despite exceeding earnings expectations, and financials, while still positive, lagged larger gains in other sectors. Treasury yields ended the day less than 0.5 bp changed across the curve, despite former Fed Chair Janet Yellen saying she would explore the possibility of a 50-year bond. As discussed above, President-elect Biden’s nominee to head the Treasury called for swift and sizable (additional) emergency stimulus to support the recovery from a recession which has “disproportionately hit the service sector and the workers who are employed in that sector” and “been particularly brutal in its impact on minorities and women.” Despite the continued push from the administration for more debt-backed aid, the 10-year Treasury yield rose just 0.5 bps to 1.09%.
Risk Appetite Solid on Inauguration Day: Treasury yields remained relatively subdued on Wednesday with small increases despite further improvement in risk sentiment that pushed oil prices and most equity markets higher. Ahead of today’s inauguration of Joe Biden as the 46th President of the United States, crude prices climbed for a second day and most foreign equity markets followed the U.S. with tech-led gains. Markets will likely remain focused on the inauguration events throughout the day amid another quiet daily economic calendar and between pre- and post-market corporate earnings announcements. President-elect Biden’s nominee for Treasury Secretary reiterated the incoming administration’s plans for big federal spending to help fuel a stronger and more broad recovery in a Tuesday confirmation hearing before the Senate. The prospects for Democrats to up the ante on the stimulus front sent yields climbing earlier in the month but had little impact yesterday. Treasury yields remained relatively quiet overnight, with the 2-year yield up just 0.4 bps to 0.14% at 7:30 a.m. CT and the 10-year yield 1.5 bps higher at 1.10%. Futures tracking the three largest U.S. equity indices were all higher. The Dow edged up 0.2%, the S&P 500 rose by a modestly firmer 0.4%, but the Nasdaq remained out in front with a 0.9% gain. Shares of Netflix, a company which has benefitted from social distancing and required lockdowns keeping people at home, surged 14% overnight on strong earnings. A stronger-than-expected quarter for new sign-ups pushed total paid customers past the 200-million mark.