The Market Today
Vaccinations Surpass Cases, Still Accelerating
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Watching the Virus and Vaccines: Officials in the U.S. and Europe showed relief about the recent decrease in new cases as vaccine efforts continued. German Chancellor Merkel said she expects the country to be able to offer vaccines to all of its citizens by the end of the summer. U.K. government officials said there is no evidence that the South African strain is more severe and that they expect vaccines will be effective against it, although official studies are ongoing. In the U.S., the CDC said more than 25 million Americans have now been given at least one shot of a COVID-19 vaccine (Bloomberg data indicate a recent jump to 32 million) and a top adviser to the President said providers no longer needed to hold back doses for second inoculations due to improved manufacturing capabilities. The adviser also said, if approved, most of the Johnson & Johnson vaccines won’t be available until June.
Republicans Counter: Stimulus remains in the fore of economic discussion. Democratic leadership from the House and Senate jointly filed a budget resolution for the 2021 fiscal year, a step closer to using the reconciliation process to pass stimulus components that Republicans won’t agree to. Those particular components became more clear after a group of 10 Republicans, ahead of a meeting with President Biden, released details of their $618 billion counterproposal to the $1.9 trillion American Rescue Plan. Among its provisions, the smaller bill would include $1,000 checks to individuals and $500 per dependent, compared with $1,400 per person in the president’s proposal. The Republican plan would begin to phase the payments out for individuals earning $40,000 and married filers earning $80,000 and cut them off completely at $50,000 and $100,000 for those groups. The president’s plan doesn’t discuss a phase-out. It would provide for a $300 weekly federal unemployment supplement through June instead of $400 per week through September. The president’s plan for $160 billion for testing and vaccines was matched. Monies for state and local governments were left out and the minimum wage was not addressed. Both sides described the meeting as productive but appeared to remain far from any compromise.
Manufacturers Clearly Upbeat Even as Production and New Orders Slow: Markit’s U.S. Manufacturing PMI was revised up 0.1 points in January’s final release, sticking at its highest level in records since 2007. However, the ISM index declined 1.8 points to 58.7, weaker than the 60.0 expected. While employment edged up to its best level since June 2019, production and new orders both declined, to six-month and four-month lows, respectively. Inventories grew at a marginally slower rate, despite expectations for a rebuild. The comments section, however, was overwhelmingly upbeat on demand, citing multiple instances in which logistics were struggling to keep up, in part because of the pandemic. On that note, supplier deliveries slowed for a sixth month with the index at its highest level since April and the prices paid index hit a nearly nine-year high.
Private Construction Spending Continues Divergence in December: Public spending on construction projects picked up 0.5% in December on gains at the federal and state and local levels. Private sector spending, however, continued to diverge. A 3.1% gain for residential investment, or housing, was primarily the result of a 5.8% increase in single family construction, with miniscule positive contributions from multifamily and home improvement projects. Non-residential spending, or business structure investment, dropped 1.7% and for a sixth month. Compared with a year ago, residential spending was up 20.7% while non-residential spending slumped 9.8%.
Fed Officials Dismiss Monetary Policy Role in GameStop Saga: The broad message from Fed Presidents Kaplan, Bostic, Rosengren, and Kashkari was unchanged on Monday. Monetary policy must remain accommodative as the economy has a long road to a full recovery and still faces risks from the pandemic. While the Fed remains committed to using all of their tools to support the recovery, fiscal authorities now shoulder the heavier burden for providing additional stimulus. Three of the four officials touched on the GameStop saga, deflecting any responsibility that monetary policy bears for creating the spectacle in recent weeks or dealing with it now.
Stocks Stormed Back as GameStop Shares Declined and Fears of a Worsening Squeeze Ebbed…for Now: Global shares overnight extended yesterday’s recovery from a prior-week decline, with U.S. futures up around 0.8% at 7 a.m. CT and foreign markets firmer. Stocks stormed back yesterday on a rally in shares of Tesla and a broad rebound across both tech companies and cyclical sectors. The Nasdaq led gains among the major indices with a 2.6% rally that outpaced a solid 1.6% improvement for the S&P 500 and smaller 0.8% gain for the Dow. While investors watched early innings of stimulus bargaining between Republicans and the White House and digested mixed reports on U.S. manufacturing, the biggest relief likely came from a pullback in shares of GameStop. The brick-and-mortar gaming retailer, whose shares soared 1,844% year-to-date last Wednesday, saw its shares tumble 30% and for just the second time in eight sessions. Retail investors, whose attention appeared to shift to silver Monday, have attacked hedge funds that have shorted the name, leading to some worries about broader market stability.
Tuesday’s optimism was likely, at least in part, due to further receding of short-squeeze pressures as shares of GameStop (-40%) and spot silver (-5.5%) both retreated. With equities bouncing back, oil prices and Treasury yields both rose. U.S. WTI is up 5.3% for the week on even daily gains to $55 per barrel, a 12-month high. The 10-year Treasury yield rose 1.4 bps Monday and had added 3.3 bps ahead of U.S. trading to 1.11%.
Auto Sales and Big Tech Earnings: Vehicle sales for the month of January are expected to inch lower after a surprising jump in December. While sales have rebounded, they remain 3.3% below their March level. We will hear from two Fed officials today, Dallas’s Kaplan (12:00 noon CT) and Cleveland’s Mester (1:00 p.m.). Alphabet and Amazon will both report 4Q earnings after the bell today.