Insights: Market Sentiment

WuRevue Week Ending 3/05/2021

 

Top News:

03/01: Australia’s central bank unexpectedly moved to keep a lid on rising yields, helping to calm some recently frayed nerves. Investors also took some comfort in a pair of positive developments on the vaccine front (here, here).  Meanwhile, economic recovery in February continued to be led by manufacturers in the US as well as in Europe (here, here).  Similar upbeat data was replicated in Asia, where Japan’s manufacturing saw growth for the first time in almost two years and China’s privately-owned factories also registered expansion, albeit at a more tepid pace.

 

03/02: After yesterday’s run-up, China’s top banking regulator cast a negative pall on trading, after the official warned of “the risk of the bubble bursting of foreign financial assets.”  Meanwhile, a voting member of the Fed, Lael Brainard, said, “A burst of transitory inflation seems more probable than a durable shift.” 

 

03/03: With the incremental rollout of vaccines worldwide, all eyes will be on the next leg of economic recovery, the service sector, where activities trended higher in select regions in February (here, here,), the Eurozone being a notable exception.  Economic data aside, stocks came under pressure due to nagging concerns over bond yields.  Resource-rich Australia confirmed its exit from a rare recession by 4Q of 2020.

 

03/04: Fed Chair Powell failed to assuage investors already fretting over higher rates, after he noted the Bank would be “patient” with higher inflation expected this year.  A slight uptick in weekly jobless claims also helped push the NASDAQ into corrective territory. Across the Atlantic, the UK hiked its corporate tax rate to 25% and expanded personal income tax base in order to pay for a six-month extension of its fiscal recovery measures.  Retail sales fell precipitously in the Eurozone in January as a result of more restrictive pandemic measures.

 

03/05: US nonfarm payrolls increased more than expected in February, thanks to a recovery in the leisure and hospitality sector.  Gasoline prices may see a jump, after OPEC+ surprisingly agreed to extend production cuts through April.  In Asia, China set a GDP growth target of at least 6% this year, reflecting its confidence.

 

 

Heard on the Street:

“It is unlikely that the Fed will let US real yields rise much above 0%, given high levels of public and private sector leverage… An associated 10-20% sell-off in US equities would also focus minds. But before then, the pain currently being handed out to Growth-tilted equity portfolios could get worse.”

— Citi’s global strategy team, as quoted by MarketWatch on 02/28/2021

 

 

Longer Game:

Warning that China could soon replace the U.S. as the world’s “AI superpower,” the bipartisan National Security Commission recently issued its recommendations, including: 1) increase R&D spending to $32 billion a year by 2026; 2) establish a new advisory body to help guide policies; 3) relax immigration laws for AI experts; 4) create a new university to train civil servants, and 5) accelerate the adoption of new tech by intelligence agencies.

 

 

Action Item:

When was the last time you checked your credit report?  Prior to the pandemic, every consumer was entitled to a free credit report from the Big Three agencies every year.  However, you can now access it every week through April 2022, gratis.  Even if you are not seeking credit, it’s important to verify items contained in the databases, given the number of consumer complaints of inaccuracies has more than doubled to 282,000 in 2020. 

 

 

WuRevue Week Ending 2/26/2021

Top News:

02/22: Investors fixated on the recovery and reflationary narrative as the 10-Year Treasury yields zoomed higher to pre-pandemic levels, having started the year at below 1%.  Confirming this optimism, a measure of leading economic indicators saw “broad-based” gains in January.  Elsewhere, China urged the lifting of US sanctions and tariffs, after Biden told European allies “we must prepare for long-term strategic competition with China.”  Business climate in Germany rebounded in February, where improvements were seen in both current and future expectations.

 

02/23: In his congressional testimony, Chairman Powell appeared committed to the Fed’s ongoing loose monetary policy, given the economy is “a long way from our employment and inflation goals.”  Biden’s $1.9T fiscal recovery bill took one step closer to a House vote, expected by week’s end.  In tandem with the promise of more federal aid, Americans grew more confident in the economy in February, even as they remained worried about the pandemic’s duration. Registering the strongest annual growth in over six years, home prices increased 10.4% in December.

 

02/24: J&J’s single-shot vaccine is expected to be approved by the FDA on Friday.  In a second day of testimony, Powell reiterated his commitment to monetary stimuli until early 2022, at least.  Both reports propelled US equities higher.

 

02/25: A notable decline in initial weekly jobless claims to a three-month low and January’s stronger than anticipated durable goods orders pointed to continuing recovery.  However, US indices, particularly growth stocks, saw steep losses due to surging yields (telegraphed already in last week’s WuRevue).

 

02/26: The market struggled to regain momentum, despite evidence of robust consumer spending in January, which showed the biggest increase since last June, thanks to governmental stimuli. Meanwhile, the so-called PCE price index, the Fed’s preferred gauge of inflation, crept up at an annual rate of 1.5%.  Consumer sentiment inched higher throughout February, remaining well below its pre-crisis peak, however.

 

 

Heard on the Street:

“Around the globe value is trading at extremely deep discounts relative to growth. No matter how we measure valuation, value-to-growth discounts are wider than 95% of the respective country’s or region’s history — except in Australia.  The tailwinds of Brexit and rapid COVID vaccination make the U.K.’s low valuation especially attractive.”

— Rob Arnott, founder of Research Affiliates, as quoted by MarketWatch on 02/24/2021

 

 

Longer Game:

The bitcoin/cryptocurrency craze has the Street divided.  Charlie Munger, the vice chairman of Bershire Hathaway and long-time partner of Warren Buffett, had this to say: “I don’t think bitcoin is going to end up the medium of exchange for the world. It’s too volatile to serve well as a medium of exchange… Bitcoin reminds me of what Oscar Wilde said about fox hunting. He said it was the pursuit of the uneatable by the unspeakable.”

 

Biden ordered a review of supply chain vulnerabilities in four areas: computer chips used in consumer products; large-capacity batteries for electric vehicles; pharmaceuticals and their active ingredients; and critical minerals used in electronics.  It remains to be seen what remedies would be prescribed to shore up weaknesses.

 

 

Bonus:

US is poised to enjoy a dramatic ramp-up in vaccine rollout: excluding trial vaccines not yet approved, the Administration believes an additional 545 million dosages will be distributed from now until the end of July.

 

 

WuRevue Week Ending 2/19/2021

Top News:

02/15: While US markets were closed, one key Japanese stock index touched its highest level since 1990, after the world’s third largest economy said its 4Q GDP expanded at a faster than expected annualized rate of 12.7%.

 

02/16: Participants took note of the continuing rise in the 10-year Treasury note yield, thanks to optimism over the Covid-19 fight (here, here and here) and likelihood of more fiscal stimulus.  Across the Atlantic, EU’s 4Q GDP fell by 0.4%, sparking concerns of a double-dip recession.  At the same time, the bloc’s largest economy saw an unexpected improvement in future economic expectations, even as current conditions remain challenging.

 

02/17: Fueled by governmental recovery schemes, US retail sales leapt 5.3% last month, far outpacing meager expectations of a 1% increase.  January’s Producer Price Index, which rose at the fastest pace since 2009, also affirmed the US economy’s recovery trajectory.  Meanwhile, UK’s latest weak CPI figure in January suggests the accommodative monetary stance is unlikely to budge.

 

02/18: The US labor market remains bleak as new weekly jobless claims unexpectedly ticked higher.  A notable decline in single-unit housing starts in January spelled no relief for a tight housing market, where investors were also parsing the implications of falling mortgage applications due to rising interest rates.

 

02/19: For now, the housing market remains one bright spot, as existing home sales rose for the second consecutive month in January.  A flash reading of Eurozone economic activities reached a two-month high in February, when manufacturing continued to outshine the services sector.  Hampered by renewed lockdown in January, UK’s retail sales decelerated precipitously; February’s economic levels appeared to have arrested further declines, however.

 

 

Heard on the Street:

“In reality the worst-case scenario for equity investors would be a selloff in [Treasurys] accompanied by widening credit spreads and a strong dollar.  To date, higher US bond yields have not been able to arrest the decline in the greenback — real interest rates are still negative.”

— Sean Darby, global head of strategy at Jefferies, as quoted by MarketWatch on 02/16/2021

 

“Our current recommendation is to stay tactically neutral for the next few weeks to see whether risk-asset valuations can revert to rationality. This means keep existing investments in the market, but hold fire on new deployments of cash.  If valuation reverts to rationality…then investors can safely deploy new cash into the market.”

— Dhaval Joshi, investment strategist at BCA Research, as quoted by MarketWatch on 02/19/2021

 

 

Longer Game:

With the leading benchmark for oil in the U.S. topping $60 a barrel for the first time since Jan. 2020 and other industrial metals gaining in recent months, can the rally in commodities be sustained?  Yes, according to one analyst, who believes the fifth so-called supercycle in the past 100 years has begun.

 

While anticipating a steady recovery in the US, one market strategist highlighted two deteriorating trends in America’s labor market, with worrisome implications for economic growth and political stability.

 

 

Bonus:

Veteran investor Mark Mobius shared his thoughts on opportunities in emerging markets, the likelihood of U.S.-China decoupling, inflationary prospects, and the greenback’s status as reserve currency.

 

 

WuRevue Week Ending 2/12/2021

 

Top News:

02/08: Biden said “international rules” would inform his dealings with China, a relationship he characterized as “extreme competition.”  Secretary Yellen made the case for the administration’s $1.9T recovery bill as a means to achieve full employment next year.  China has formalized antitrust rules designed to rein in the threat of Big Techs in a one-party state.

 

02/09: Touted as one of Yellen’s preferred measures of the US labor market, the latest JOLTS report confirmed jobs recovery has stalled, due to continuing weakness in the leisure and hospitality sectors.  Optimism among US small businesses continued to deteriorate in January, as future expectations were stymied by an uncertain pandemic outlook.

 

02/10: Chairman Powell reiterated the loose monetary policy will be maintained in order to achieve the Fed’s twin goals of maximum employment and a sustained 2% inflation over time.  Notwithstanding some concerns, January’s data showed all quiet on the inflationary front as core CPI decelerated to 1.4%. 

 

02/11: Seesawing investor sentiment resulted from the “fear of missing out,” juxtaposed against a less than sanguine weekly unemployment claims report that pointed to a struggling labor market.

 

02/12: Consumer sentiment sank to a six-month low in early February, due to a decline in expectations for future financial security, particularly amongst lower-income households.  Indicative of the severity of economic distress, UK saw its 2020 GDP shrink by 9.9%, the worst since 1709.

 

 

Heard on the Street:

“Sure, equity investors like the idea of more fiscal stimulus as long as bond yields and the Fed do their part not to upset the balance. However, the rate at which the bond markets has been pushing yields higher in the past week should be seen as a warning that the bond vigilantes may have been in hibernation for a long time, but their day in the sun may be coming quicker than expected.”

— Steven Ricchiuto, U.S. chief economist at Mizuho Securities, as quoted by MarketWatch on 02/09/2021

 

“Although there are frothy segments of the market that are detached from fundamentals, we do not see bubble conditions more broadly.  Instead, we see a stock market that is trading at a premium to historical valuations—partly justified by low rates, a shift in sector composition toward higher-valued growth sectors, supportive monetary and fiscal policy, as well as cheaper access to markets (i.e., secular decline in commissions and fund fees).”

— Keith Lerner, CFRA’s chief strategist, as quoted by MarketWatch on 02/09/2021

 

 

Longer Game:

As cash use dwindles, central banks are pushing ahead with digital currency.  One such leader is China, which is testing different pilot rollouts, including digital “red envelopes” worth $6MM in total for the Lunar New Year.

 

 

Bonus:

Can too much stimulus have unintended consequences?  Not in the immediate term— however, the 10-year Treasury breakeven rate, a barometer of inflation expectations, has crept up to its highest level since 2014.

 

As Asian countries and communities celebrate the Lunar New Year, what can one expect from the Year of the Ox?

 

 

 

WuRevue Week Ending 2/05/2021

Top News:

02/01: The Biden administration is reportedly meeting select GOP senators to bridge the $1.3T gulf between their respective recovery proposals.  Manufacturing in major economies, including US, China and EU, saw more tepid pace of recovery in January amid Covid-induced impediments. 

 

02/02: Encouraged by declining hospitalizations and increasing inoculations, investors pushed US indices higher, focusing on earnings and recovery prospects.  While Eurozone’s 4Q GDP figures contracted less than anticipated, short-term prospects remain clouded by the bungled vaccine rollout.

 

02/03:  A whole raft of upbeat earnings reports in the US and on the Continent emboldened investors focused on the economic narrative.  Optimism was further warranted by a surprisingly strong monthly payrolls report in the private sector, in addition to encouraging vaccine efficacy news (here, here).  This recent stream of steady progress against the pandemic, coupled with the promise of more federal aid, contributed to an expansion of the US services sector in January. Meanwhile, Yellen will reportedly meet with market regulators to discuss heightened volatility driven by retail trading.  In Asia, China’s services sector expanded at the weakest pace for nine months in January, evidencing an economy’s vulnerability to impromptu Covid restrictions. 

 

02/04: Investors took some comfort in both the latest unemployment claims tally, which dropped for a third straight week, and the ongoing largely positive earnings season. The British pound surged after the BOE eased concerns that the central bank might be considering negative interest rates. 

 

02/05: Hinting at a long road ahead to full employment, US saw slightly fewer jobs added than expected in January.  US Senate voted to fast-track the administration’s $1.9T recovery bill, even if details will likely change after negotiations.  A single-shot vaccine candidate has been submitted to the FDA for approval.

 

 

Heard on the Street:

“The vaccination process appears more complicated than anticipated, falling short both in terms of timing and distributions.  As well as new developing risks of additional variants of the disease, the economy may face a bumpier, longer pathway back to some semblance of normal.”

— Lindsey Piegza, chief economist for Stifel, as quoted by MarketWatch on 01/30/2021

 

“I do believe that [low] interest rates as well as [stimulus] payments and boredom are causing investors to be striving after companies that really don’t have the fundamental underpinnings.  That could end up being a fairly negative situation for many of the investors left holding the bags.”

— Sam Stovall, CFRA’s chief strategist, as quoted by CNBC on 02/01/2021

 

 

Longer Game:

Will automation spell the end of US labor?  Highlighting how the asymmetrical taxation between labor and capital since the 80’s has intensified income inequality and distorted investment and employment decisions, one group of academics argues corporate tax reform is a critical first step in eliminating incentives for excessive automation while encouraging “labor-complementing” technologies.

 

 

Bonus:

Contrary to vox populi driven by hunches as well as political rhetoric primed solely for short-term gains, a working paper found “no indication that minimum wage has a negative effect on the unemployment rate, on the labor force participation, or on the labor market transitions,” according to its examination of data from 1979 – 2019.

 

WuRevue Week Ending 1/29/2021

Top News:

01/25: Tough negotiations between the administration and Congress have begun on additional fiscal support.  A measure of German business confidence declined more than expected in January, due to heightened restrictions weighing on outlook.

 

01/26: Asian markets were spooked by speculation that China’s central bank may be shifting its monetary policy.  The IMF modestly raised its 2021 global GDP growth forecast to 5.5%, predicated on a vaccine-driven recovery.  Mirroring this forward-looking mentality, one gauge of US consumer confidence improved in January, albeit ever so slightly.  Meanwhile, UK’s latest unemployment rate rose to the highest level since 2016.

 

01/27: US indices tumbled to session lows, after the FOMC underscored the challenging road ahead, following its first policy meeting of 2021.  The administration is ramping up the vaccine rollout, along with a flurry of executive actions aimed at bolstering the nation’s Covid response. Despite slower growth in new orders, US manufacturing demonstrated continuing resiliency in December.  Consumer confidence in Europe’s largest economy declined in January due to its extended lockdowns.  Additionally, bond investors are closely monitoring EU’s reportedly forthcoming revision of member states’ 3% and 60% deficit and debt thresholds.

 

01/28: 4Q GDP growth in the US moderated to 4%, resulting in the worst single-year performance of -3.5% since 1945.  This fading momentum in recovery was also evident in another economic index that measures U.S. business cycles in December.  Though hardly a cause for celebration given the persistently high levels, the latest weekly unemployment claims report proved marginally better than expected.

 

01/29: Sustained volatile trading in a small batch of heavily shorted companies sparked concerns over a speculative bubble in the wider market. Concurrent with the weakening of US consumer spending in December, the core PCE index (the Fed’s preferred measure of inflation) rose at an unremarkable clip of 1.5%. 

 

 

Heard on the Street:

“There’s way too much leverage in the system, and we’re starting to see signs that this excess leverage is going to be unwound in a way that will create headwinds for the stock market and other risk assets for more than just a few days.”

— Matt Maley, chief market strategist at Miller Tabak, as quoted by CNBC on 01/28/2021

 

 

Longer Game:

While acknowledging that he was “thrilled” with Biden’s inauguration speech, Ray Dalio, who heads the world’s largest hedge fund, remains less than sanguine about bridging divides, noting, “Good words and spirit aren’t enough. People will have to agree on both how to grow the pie and how to divide it well. That will require revolutionary change.”

 

 

Bonus:

NIH’s Dr. Fauci provided a wide-ranging update on the current war against the coronavirus.  Meanwhile, one US biotech firm announced its late-stage vaccine candidate is effective against new coronavirus variants, while another pharma’s single-shot vaccine appeared less efficacious than hoped.  On the treatment front, encouraging trial results of two monoclonal antibody cocktails have also been reported (here, here). 

 

WuRevue Week Ending 1/22/2021

 

Top News:

01/18: Marking the first year in which China’s GDP expanded beyond 100 trillion yuan (US$15.4 trillion), the world’s second largest economy eked out a 2.3% growth in 2020, in stark contrast to other major economies.

 

01/19: Treasury Secretary nominee Yellen championed Biden’s fiscal stimulus plan and her commitment to a “market-determined” US greenback, in lieu of a strong dollar, at her confirmation hearing. The IEA lowered its 2021 daily oil demand as fresh lockdowns are expected to weigh on consumption.

 

01/20: Each of the major US indices closed at record highs, following Biden’s inauguration as the 46^th president.  The new administration is slated to issue executive actions on a wide spectrum of issues, ranging from pandemic relief, to immigration, to climate change.  In a study yet to be peer-reviewed, the Pfizer/BioNTech vaccine was found likely to be effective against the more transmissible UK variant, even as questions linger regarding efficacy against some mutations. UK inflation remained a distant concern, though it registered a higher jump in December.

 

01/21: The administration released its pandemic action plan, including invoking the Defense Production Act. On the data front, the latest weekly jobless claims saw slight improvement; additionally, December housing starts soared at the quickest pace since 2006. On the Continent, the ECB left its accommodative policy and bond-buying program unchanged.  In Asia, investors cheered Japan’s export sector, which grew for the first time in two years in December.  Meanwhile, Japan’s central bank raised its annual GDP growth forecast modestly to 3.9%, while standing pat on its monetary policy, similar to other major global peers.

 

01/22: Heightened virus worries worldwide (here, here) prompted some profit-taking, following recent market highs.  Compounding investor worries were data that showed economic conditions in the Eurozone worsened in January, prompting some chatter of a double-dip recession.  In contrast, the latest existing home sales report confirmed US housing remained a bright spot.

 

 

Heard on the Street:

“Right now the bond market is starting to say we’re going to start seeing rising inflation, we’re going to have a more robust economy in six to 12 months.  And if the forward curve of the bond market is correct, one could expect in nine months or 12 months at the very least, the Federal Reserve and other central banks starting to re-evaluate their monetary policy.”

— Larry Fink, CEO of BlackRock, as quoted by MarketWatch on 01/19/2021

 

 

Longer Game:

Is China’s renminbi poised to overtake the US greenback as the world’s reserve currency?  Not so fast, said two scholars, who believe the dollar’s resilience can be attributed to “all of the intangible qualities that underpin investor confidence – not least a strong banking system backed by a reliable sovereign.”

 

 

Bonus:

As of mid-January, a solid majority of institutional investors believed some financial markets, including bitcoin and U.S. tech shares, are in bubble territory, according to a Deutsche Bank survey of 627 market professionals.  Moreover, margin debt—the amount of leverage investors use to speculate—reached a historical high of $778 billion at year-end.

 

WuRevue Week Ending 1/15/2021

 

Top News:

01/11: Recognition that the market has gotten complacent on risks prompted selling in US equities, amid political upheaval, stalled vaccination rollout, and rising interest rates.  UK financial regulators warned consumers against investing in cryptoassets.

 

01/12: Amid the flurry of political news, US topped 22 million Covid cases, though the global situation remained no better, especially in Europe.  Small businesses turned more pessimistic in December than at any time since the onset of the pandemic, further illustrating challenges faced by Main Street.

 

01/13: One short-term worry was removed as the core CPI remained below the Fed’s 2% target, rising at an annual pace of 1.6% in December.  The Fed’s latest Beige Book showed that economic activity increased “modestly,” while the prospect of COVID-19 vaccines has bolstered business optimism.  After the UK regulators’ earlier warning, ECB President Lagarde also views bitcoin as a “highly  speculative asset” requiring global regulation.

 

01/14: Markets took the unprecedented second impeachment of a sitting President in stride, focusing instead on Biden’s reportedly $2T recovery plan.  Confirming the need of additional support, initial weekly jobless claims rose above expectations.  Due to this slack in full employment and the shortage of demand in major economies, Fed Chair Powell noted rates will continue to be accommodative. Separately, interim data published in a peer-reviewed journal suggest J&J’s single-shot adenoviral-vector vaccine looks promising.

 

01/15:  Renewed restrictive Covid measures led to a consecutive drop in US retail sales in December.  Meanwhile, one measure of wholesale prices showed inflation was not an immediate concern.  A preliminary measure of consumer sentiment dipped slightly in January, stabilized by vaccine hopes and stimulus prospects.  While snapping a streak of six consecutive monthly increases, UK’s GDP contracted less than expected in November. 

 

Heard on the Street:

“The first half of this year, the blue wave will probably continue to be bullish… In the second half of the year, we may be on the lookout for some consumer price inflation which would not be good for overvalued assets… We do see upward pressure on the bond yield. I think at some point the Fed says ‘Maybe bond yields should be higher since the economy is doing well.’”

— Edward Yardeni of Yardeni Research, as quoted by CNBC on 01/10/2021

 

“The equity market’s ability to rally decisively in the face of the tragic events at the Capitol on 1/6, the virus’ escalation, a poor employment report and rising yields confirm that a new, more speculative, more volatile phase of the bull market has begun… The depth of any such pullbacks in 2021 is largely dependent on yields.”

— Julian Emanuel, BTIG’s chief equity and derivatives strategist, as quoted by MarketWatch on 1/12/2021

 

 

Longer Game:

Both the incoming national security advisor and rumored Indo-Pacific czar charted a course for US-Sino coexistence, involving elements of competition and cooperation.

 

 

Bonus:

PIMCO, the world’s largest money manager, cautions against “excessive optimism” over the next 12-18 months for three reasons: 1) curtailed fiscal support as governments face ballooning budget deficits; 2) Beijing’s challenge in striking a balance between reducing credit growth and supporting businesses; and 3) a “difficult market environment” once the “easy pandemic recovery trades have played themselves out.”

 

WuRevue Week Ending 01/08/2021

Top News:

01/04: Following recent market highs, stocks swooned as investors took profit ahead of ample political anxieties anticipated in the US (here, here).  A South African coronavirus variant with increased transmissibility is sparking concerns over whether existing vaccines will prove equally effective.

 

01/05: One gauge of US manufacturing revealed better than expected growth in December, supported by new orders, production, and employment.  The price of crude oil jumped in the wake of the announcement by OPEC+ to cut production.

 

01/06: Viewing the unprecedented takeover of the Capitol as irrelevant to earnings and economy, Wall Street focused instead on fiscal support from a more sympathetic Democratic ruling “trifecta,” now that its Senate control appears sealed.  An indicator of US private payrolls dropped unexpectedly in December.  Additional flashpoints in US-China relations arose after a Chinese security dragnet detained over 50 progressives in Hong Kong.

 

01/07: Recent market rally continued after the US Congress certified the Biden/Harris victory.  Meanwhile, weekly unemployment claims reaffirmed the unlikelihood of improvement until the pandemic subsides. Flip-flopping for a second time in less than a week, the NYSE is proceeding with the delisting of three Chinese telecoms, with Alibaba and Tencent also rumored to be targets.

 

01/08: December marked the first month in which US saw job losses since last April, with leisure and hospitality bearing the brunt of cuts.  Incoming Biden administration is reportedly considering an additional $3 trillion in fiscal stimulus in direct household payments and infrastructure upgrades, potentially accelerating inflationary pressures.  Initial research suggests the Pfizer-BioNTech vaccine appears effective against new coronavirus variants.

 

 

Heard on the Street:

“If we try to fine-tune a very modest inflation overshoot of only a tenth or two, we run a very large risk of failing to achieve our 2 percent averaging goal within any reasonable amount of time. For me, getting inflation moving up with momentum and delivering rates around 2-1/2 percent is important for achieving on our inflation objective in as timely a manner as possible.”

— Charles Evans, Chicago Fed President and FOMC voting member, in a speech on 01/04/2021

 

“Democrats picked up both Georgia Senate seats, paving the way for Biden to implement his agenda more broadly… We are going to have the largest stimulative event in the history of the planet in the second half of this year…and there’s all this pent-up demand.”

— Jonathan Golub, Credit Suisse equity strategist, as quoted by MarketWatch on 1/07/2021

 

 

Longer Game:

However tempting it may be to dismiss the events of Jan. 6 as a “beer belly putsch,” lasting damages have been inflicted upon the self-image and worldwide standing of the US.  One commentator from MIT believes the key to understanding those responsible is their disposition towards “right-wing authoritarianism,” which defies traditional demographic boundaries.

 

 

Bonus:

Spurred by loose monetary and fiscal policies, the US equity market has been on a upward channel since April.  While it may be unfashionable to hear from those less sanguine, it’s more important than ever to do so in order to maintain a balanced perspective and avoid the groupthink trap of excessive euphoria. 

 

WuRevue Week Ending 01/01/2021

Top News:

12/28: Avoiding a government shutdown and providing additional Covid assistance, the Administration signed the $2.3T spending and recovery bill, despite earlier posturing to the contrary.  Another significant near-term market headwind was lifted as well, when the EU-UK clinched a Brexit deal on Christmas Eve, after four years of talks.  US holiday retail sales, driven by online commerce, saw an annual growth rate of 3%, according to one estimate.

 

12/29: A quarterly private survey of Chinese businesses showed a tepid outlook as roughly two-thirds polled said they do not expect a return to 2019 levels until at least three months from now.  Driven by demand as a result of record low interest rates, home prices in 20 large US cities rose at a 7.9% yearly pace in October.

 

12/30: The UK approved the joint vaccine developed by AstraZeneca and University of Oxford, the third to receive the greenlight after peer reviews.  China reached an investment agreement with the EU, even if some question its substantive economic impact.

 

12/31: Decelerating modestly in December, China remains on track to be the only major economy to show positive GDP growth in 2020.  Latest weekly initial and continuing jobless claims decreased, yet they remain at elevated levels when compared with the year-ago period. Hiccups in the rate of vaccination amplified concerns over reports of the more contagious UK variant in the US.  Prolonging the long-running dispute over subsidies to aircraft manufacturers, US ratcheted up tariffs on $7.5 billion worth of European products. 

 

 

Heard on the Street:

“Market historians looking back to another incredible year – 1999 – in which the S&P 500 closed the year at a new all-time high, will recall that the initial few days of the year 2000 saw a vicious correction. Yes, times were different, and the focus then was on Y2K and the concentrated bubble of the time, but investors need a reminder that even during major bull market runs, one can see significant set-backs.”

— John Hardy, Head of FX Strategy at Saxo Bank, in a market update on 12/28/2020

 

“To be frank, buying gold or silver is not a contrarian investment position today… There are enough people in agreement with the idea that all government backed fiat currencies are doomed to some level of devaluation through inflation due to the level of fiscal and monetary imprudence and unsustainable debt imbalances in the financial system.”

— Kevin Smith, CIO of Crescat Capital in its December note

 

 

Longer Game:

How should the US and EU deal with China’s technological rise?  Hank Paulson’s think tank highlighted areas of cooperation in order to support “liberal democracy” and blunt “rival systems of digital governance”: 1) building a shared digital infrastructure; 2) harmonizing export control of sensitive technologies; and 3) connecting the developing world with the US-EU ecosystem of standards. 

 

 

Bonus:

In its December survey of 984 global market professionals, Deutsche Bank found issues relating to Covid, tech valuations, and premature withdrawal of government stimulus programs as their top concerns in 2021.