Feet Back On The Ground

Feet back on the ground.  Stocks had a mixed close as investors await results from DC, now that the fanfare is over. Technology shares muscled higher keeping the cap-weighted S&P500 in the green while economically sensitive stocks paired gains.

 

N O T E W O R T H Y

 

Policy… not politics.  I have been poking a bit of fun at lawmakers lately.  They spend lots of time politicking, posturing, and tweeting, sending investors in all sorts of directions.  At the end of the day however, it’s not about what they say, but rather what they do.  When a politician throws out a big stimulus number, they get lots of press, which they adore, and traders typically get volatility as the market reacts… which they adore.  All of that makes things quite difficult for long-term investors, who may feel that they missed something or that they need to act.  If those investors fall prey to the bluster and their lack of conviction, it usually ends up… well… not good. Traders, on the other hand cherish the volatility and wait patiently for fearful or overzealous investors to jump into the fray.  A trader’s ability to make gains is tied very closely to market volatility… which we have had plenty of in the past year.  When I read the headlines, I am always searching for tangibles.  I scrutinize economic numbers and comb through earnings releases. On the former, the numbers are the numbers and there is little ambiguity.  They typically reflect a snapshot in time… last month or even last quarter, so as investors we have to determine if there is a trend and whether or not it will persist.  Not an easy task, but at least based on facts, numbers.  On earnings, with the advent of modern accounting methods and regulations, companies have very little room to cloud their performance… barring fraudulent activity, which we have witnessed as well, but for the most part, cash is cash, debt is debt, and earnings are earnings.  We look for trends and sustainability there as well.  In many cases, company executives will share their opinions about performance in the months ahead.  That helps, but requires some scrutiny as well.  Still, there is always some fact-based number or new business opportunity at its core.  So let’s get back to the economy and politics for a moment.  Believe it or not, economists can fairly accurately predict how much actual changes in policy may affect economic output, especially when it comes to fiscal stimulus.  They can predict how much each dollar injected can affect GDP growth.  The 2017 tax act put more money into circulation for companies and consumers.  That is actual fact, tied to policy.  Raising tariffs cost companies profits.  That is actual fact, tied to policy.  The CARES Act, passed last year, provided relief to companies and put money in the pockets of consumers.  That is actual fact, tied to policy.  There was much bluster leading up the elections in November.  Lots of posturing on both sides, but ultimately in the wake of the election, lawmakers passed a $900 billion stimulus package which provided additional support to companies and put money in the pockets of consumers.  More fact, real numbers, tied to policy.  Since the elections, there has been lots of posturing on more stimulus, infrastructure spending, possible changes in taxes, votes in the lower chamber that had no chance of ever making it through the Senate, and yes, lots of speeches and tweets by both parties.  Markets have certainly responded to all of the promises. Now, it is up to those lawmakers to make good on those promises… with policy.  Until then, all of the speeches, tweets, presentations, political handwringing, finger pointing, and gesticulating is just… bluster.  So, as in the past, smart investors await policy, and applaud any positive changes, just as they have in the past, with TARP (which took us out of the Financial Crisis), quantitative easing, Fed interest rate changes, tax cuts from the 2017 tax act (it’s actually called the Tax Cuts and Jobs Act), The CARES Act, and the $900 COVID relief bill recently passed (it’s real title is the Consolidated Appropriations Act, 2021).  Regarding any further stimulus and possible infrastructure bills, we will have to wait and see.  AS YOU ARE READING this there is much debate amongst Senators about the size of any future package… and the markets are reacting. Senators on both sides have been questioning the size of the bill, which can mean that ultimately, that the $1.9 trillion President Biden proposed may be paired down.  Economists can tell you how much any potential number can affect GDP, but until politics becomes policy… it is pure speculation.

 

THE MARKETS

 

Stocks had a weak, but mixed close yesterday as investors begin to worry about more stimulus, further restrictions, and some weaker-than-expected earnings.  The S&P500 rose by +0.3%, the Dow Jones Industrial Average slipped by -0.04%, the Russell 2000 Index fell by -0.89%, and the Nasdaq Composite Index climbed by +0.55%.  Bonds slipped and 10-year treasury yields added +2 basis points to 1.10%.

 

NXT UP

 

– Markit Flash Manufacturing PMI (Jan) is expected to come in at 56.5, down from last month’s 57.1 print.

– Markit Flash Services PMI (Jan) is expected to have fallen to 53.4 from 54.8.

– Existing Home Sales (Dec) may have slipped by -1.9% after falling by -2.5% in the prior month.

– This morning, Schlumberger beat while Huntington Bancshares missed.  We have yet to hear from Ally Financial and Kimberly-Clark, who are expected to announce before the bell.

– Next week will be filled with lots more earnings along with more housing numbers, Consumer Confidence, Durable Goods Orders, GDP, Personal Spending, price deflators, and University of Michigan Sentiment.  Additionally, the FOMC will meet and hold a press conference, which will be very closely watched.  It will be a big week, so check back on Monday for calendars and details.

 

 

daily chartbook 2021-01-22