We Knew That

We knew that.  Stocks fell on Friday, capping off a weekly loss as virus cases and layoffs rise in tandem.  According to economic releases, producer prices are on the rise, retail sales have recently slipped, while manufacturing continues its steady recovery.

 

N O T E W O R T H Y

 

All the old familiar faces.  Well, it’s upon us.  Joe Biden will be officially sworn in as President tomorrow after a long and chaotic pre-election and post-election period.  The changing of the guard in Washington DC seems unlikely to put an end to the Trump legacy, despite Trump’s personal, legal, and political woes. At this stage the movement is beginning to appear bigger than the man who may have catalyzed it, sending a clear message that many groups within society feel that their voices are unheard, though some of those voices may be unsavory.  Biden’s taking over the helm, will hardly represent a shockingly new legacy or a movement.  Though it is a little early to be writing a history of the Biden Presidency on the day prior to its beginning, the President-elect’s cabinet picks are setting the stage for his legacy to unfold. He is clearly… and quite appropriately… focusing on the economic recovery which begins with the battle to put an end to the deadly pandemic.  Biden appears well-aware of the changing electorate, both Republican and Democrat, and he has selected cabinet members and staff members to better represent not only the Nation’s current needs (because experience does matter) but also the desires of a younger, more diverse electorate to evolve.  One noteworthy cabinet pick is Janet Yellen for Treasury Secretary, who, if confirmed by the Senate, will take over for Stephen Mnuchin. Yellen served as Fed Chair under Obama and for a little over a year under Trump until she was replaced by now-chair Jerome Powell.  Janet Yellen is known to be a pragmatic Keynesian economist who tends to lean more dovish on policy.  It is important to note, that she, unlike the Fed Chair, is not independent, and would be responsible to forward the President’s policy. Biden, on Friday, put forth a plan for a $1.9 trillion stimulus package, called the “Rescue America Plan”.  It is aggressive, though largely expected by the market, and Yellen, if confirmed, would be responsible to administer any policy approved by Congress.  So, yes, that is good for the economy and the market, but hardly progressive.  She is poised to become the first woman to hold the position, making Biden’s pick a historical one.  She also made history as the first woman to hold the position of Fed Chair.  Though, not official yet, Biden is expected to nominate Gary Gensler as the new SEC Chair.  He is another familiar face, having served in the Obama Administration as CFTC (Commodity and Futures Trading) Chair and known as a tough regulator.  The former Goldman Sachs partner is expected to reverse some of Trump’s more lax banking policies, but he is considered to be progressive and likely to embrace blockchain technologies and electronic currencies.  So, perhaps the three most influential political appointees for the markets are Treasury Secretary, Fed Chair, and SEC Chair.  Jerome Powell’s term as Fed Chair will end in 2022, though his term on the board will go through 2028.  Though the Chair is nominated by the President and confirmed by the Senate, the President cannot “fire” a chair.  In Yellen’s, case, she resigned her role and left the board, clearing the path for Powell’s nomination.  Powell, appears poised to stay in his role through the end of his term and Biden has not yet made any statements on Powell’s successor. Powell, who has shown himself to be dovish (despite being the target of Trump’s ire), has been applauded by the banking industry and the market.  At the end of the day, the markets will have three familiar, and all well-liked, faces to contend with. “Familiar” being the operative word.  Nothing revolutionary, just slightly evolutionary.  The markets like that.

 

THE MARKETS

 

Stocks sold off on Friday resulting from profit taking and more news that recovery is stalling.  Though Biden officially offered up his $1.3 trillion Rescue America Package, stocks sold off as the stimulus was already factored into price.  It was a case of selling the news after having bought the rumor. The S&P500 slid by -0.72%, the Dow Jones Industrial Average fell by -0.57%, the Russell 2000 Index dropped by -1.49%, and the Nasdaq Composite Index sold off by -0.87%.  Bonds climbed and 10-year treasury yields gave up -4 basis points to 1.08%.

 

NXT UP

 

– The week ahead will feature Building Permits, Housing Starts, Existing Home Sales, a number of regional Fed reports, and flash PMIs.  Lots of earnings will also be announced in the days ahead. Please refer to attached economic and earnings calendars for details.

– Janet Yellen will begin her Senate confirmation hearings today and is expected to call for aggressive Government stimulus to get the economy back on track. This has helped push futures higher overnight.

– This morning. Goldman Sachs, Citrix, Halliburton, Bank of America, and State Street all beat estimates.  After the bell, we will hear from Netflix and Interactive Brokers.

 

 

daily chartbook 2021-01-19

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earnings releases 1_19