The Market Today
Yellen: “Smartest Thing We Can Do Is Act Big”
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Yellen Goes to The Hill: Former Fed Chair Janet Yellen will appear before the Senate Finance Committee at 9:00 a.m. CT today for her confirmation hearing as Treasury Secretary. According to media reports, Yellen will tell lawmakers, “Neither the President-elect, nor I, propose this relief package without an appreciation for the country’s debt burden. But right now, with interest rates at historic lows, the smartest thing we can do is act big. In the long run, I believe the benefits will far outweigh the costs.” Last week, the president-elect proposed $1.9 trillion in additional emergency aid for the economy.
Prior-Week Themes to Remain in Focus: Foreign equities were mixed Tuesday but U.S. futures firmed up following a holiday break and prior-week decline. Sovereign yields, however, were more in sync as longer yields moved higher and most curves steepened slightly, a reversal of the trend from late last week. The unexciting U.S. economic calendar this week will keep investors’ attention on last week’s major themes: pandemic developments, corporate earnings, and the push for more stimulus. As expected, German Chancellor Merkel is advocating for an extension of the current lockdown through the middle of next month. Prior to an official final decision, a report released Tuesday showed economic expectations strengthening slightly more than expected in January to a four-month high. The global corporate earnings season is ramping up this week with Goldman and Bank of American beating earnings expectations in pre-market releases, the latter helped out by the release of some loan loss reserves. Bank of America shares declined, however, as revenue missed expectations.
Treasury Yields Rise as New Administration Keeps Push for More Emergency Stimulus: A major focus of the corporate earnings season will be the quality of corporate outlooks as management teams transition focus to 2021. This political transition in Washington and Wednesday’s inauguration will also surely dominate the headlines. While current Chair Powell and his colleagues at the Federal Reserve have delicately and strategically implored Congress to provide continued support for the economy, former Fed Chair Yellen, President-elect Biden’s nominee for Treasury Secretary, is expected to be more frank today in a speech to the Senate. At 7:15 a.m. CT, S&P 500 futures were up 0.7%, splitting similarly sized gains for the Dow and Nasdaq. The 2-year Treasury yield had inched up 0.6 bps to 0.139% and the 10-year yield had added 2.7 bps to 1.111%.
ICYMI – January 15, 2021 Weekly Market Recap: A pre-existing trend for higher yields persisted through Monday and into early Tuesday as speculation continued about Democrats’ plans for more stimulus to aid the recovery. Since Democrats took back the Senate, yields have jumped on the increased likelihood that the new administration will be able to upsize their plans relative to what would have been possible with a split Congress. However, after touching 1.19% early Tuesday, a new high back to March, the benchmark yield drifted lower and sideways for the remainder of the week, ending down 3.2 bps at 1.08%. U.S. business and consumer confidence reports were weaker than expected, jobless claims spiked, and a noisy retail sales report showed some continuous virus interruptions. European governments sought tighter restrictions, with Germany contemplating a longer lockdown and France pulling a nationwide curfew forward from 8 p.m. to 6 p.m. Additionally, monthly auctions of 10-year and 30-year Treasury debt signaled strong interest in longer Treasury securities. Those forces countered the larger-than-expected emergency stimulus plan proposed by President-elect Joe Biden on Thursday. The $1.9 trillion plan includes, among other items, $1,400 direct checks, a $400 weekly supplement for unemployment benefits to be extended through September, and $350 billion for state and local governments. Notable but with little market impact, the House voted to impeach President Trump for a second time for inciting an insurrection and Chair Powell reiterated that now is no time to even discuss potential policy changes. Click here to view the full recap.