Hope all is well. Stocks took a breather, closing down more than 1% after posting record highs the week prior. Wells Fargo and JP Morgan released earnings last week, kicking off what promises to be an eventful earnings season. I have broken down this week’s news using songs and lyrics from The Notorious BIG 1994 album Ready to Die.
Gimme the Loot
President-Elect Biden is counting on Americans spending on Rolex watches and colorful Swatches…well maybe not that. Biden is however banking on consumers spending again. The new administration unveiled last Thursday a $1.9 trillion economic relief plan that it will bring to Congress for approval. The proposed bill’s size represents about 9% of GDP, is more than double the bipartisan bill approved last month, and is only slightly smaller than the 2020 Cares Act. The plan is the first of two major spending initiatives Biden will seek in the first few months of his presidency, and it includes additional checks to households, expanded unemployment benefits, a minimum-wage increase, vaccine funding, and increased aid to state and local governments.
Who Shot Ya
As (the government) proceeds to give us what (we) need in terms of vaccine some states are experiencing difficulties in getting the shots into enough people’s arms. The move in stocks, indicates the market is assuming no major setbacks in the distribution of COVID-19 vaccines. A vaccinated public will allow the economy to return closer to its normal state by year-end. The reopening and a return to typical spending habits by consumers is expected to facilitate a faster and more even economic recovery. Recent COVID-19 spikes across the country suggest that the virus has yet to be contained and will likely continue to impact near-term growth. A slower rollout of vaccines could result in uneven growth for a few quarters, whereas quicker distribution could drive further growth.
Things Done Changed
Turn your pages to 1993 Treasury yields began to rise slightly from their 1993 lows as the growth outlook improved – though no other signs of inflation had yet emerged. Taking his cue from rising yields, Alan Greenspan and the Fed surprised markets by beginning to tighten monetary policy, leading to a horrendous bond market the following year. Jerome Powell said Thursday that the Fed, when the recovery is in place, will be “very careful” to communicate “well in advance” its intention to lower its asset purchases and avoid the market disruptions unexpected Fed tightening has caused in the past. The Fed chair is also repeating that the Fed is looking for inflation to hold above its 2 percent goal “for a time” before policy makers would consider withdrawing stimulus.
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