Markets, Economy

Weekly Kickstart (01/11/2021-01/15/2021)

1/11/21 8:00 AM

iStock-626627280.jpgStocks continued higher last week, as the S&P 500 rose by 1.83 percent to 3,824.68, yet another new all-time closing high. One of the kneejerk reactions seen in the market following the result of Tuesday’s Georgia runoff election was a (brief) selloff in the NASDAQ and a rally in the Russell 2000. This price action makes sense if one believes the power flip in the Senate is inflationary and recognizes that growth (often technology) stocks have historically tended to underperform when the Federal Reserve begins a new rate-hiking cycle, whereas small-cap value stocks have in many cases outperformed, at least early cycle. However, as mentioned last week in an update to our 2021 economic outlook, even though inflation pressures should continue to firm in the new year any additional fiscal input resulting from the runoff outcome likely will still not generate enough upward pressure on consumer prices in the near-term to force the Federal Reserve to raise rates during these next twelve months.

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2022 and beyond is a different story, but arguably what matters more than the exact timing of the next rate hike is that the FOMC is likely to use forward guidance to signal well in advance any plans to make a major shift in monetary policy. This is intended to provide the markets with ample time to gradually adjust to the prospect of rates finally lifting off of these historically low levels, and in turn hopefully avoid another “taper tantrum” or other adverse reaction. It is also important to remember that a rising rates environment does not mean that every stock is going to suddenly start declining in value but simply that the sectors that outperformed during the prior low rates regime will potentially be replaced by new leadership from other arenas. Further, if we look at the six most recent periods of prolonged uptrends in the yield on the 10-year U.S. Treasury note, the S&P 500 rose 83.3 percent of the time and experienced an average gain of 23.4 percent. Of course past performance does not guarantee future returns, and as critical as all of these above-mentioned issues are the containment of the coronavirus and subsequent reopening of the economy will remain the most pressing matters for the country. Any regular investors uncomfortable navigating this environment should consider reviewing their positioning to make sure it is properly aligned with their risk tolerance, nearness to retirement, and other unique variables. Additional assistance is available by consulting with a professional financial advisor and as always, we are here to help with any questions you may have.

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To recap a few of the things we learned about the economy last week, the positives included that construction spending firmed, gauges of both goods-producing and service-providing business activity improved, household credit card debt shrank for a second consecutive month, the rate of joblessness held steady, prime-age employment firmed, and economic weakness remained concentrated in lockdown-sensitive arenas. As for the negatives, the nation’s trade deficit widened, mortgage applications slid, private-sector payrolls unexpectedly fell, corporate layoff announcements increased, and the number of Americans making first-time claims for unemployment benefits remained alarmingly high. This week the pace of economic data slows down slightly but there are still a few important reports on factory output, labor market slack, consumers, and inflation scheduled to be released.

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What To Watch:

Monday

  • Raphael Bostic Speaks 12:00 PM ET
  • 3-Yr Note Auction 1:00 PM ET
  • Robert Kaplan Speaks 6:00 PM ET

Tuesday

  • NFIB Small Business Optimism Index 6:00 AM ET
  • JOLTS 10:00 AM ET
  • Loretta Mester Speaks 12:00 PM ET
  • 10-Yr Note Auction 1:00 PM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET
  • CPI 8:30 AM ET
  • Atlanta Fed Business Inflation Expectations 10:00 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • 30-Yr Bond Auction 1:00 PM ET
  • Beige Book 2:00 PM ET

Thursday

  • Jobless Claims 8:30 AM ET
  • Import and Export Prices 8:30 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • Raphael Bostic Speaks 11:00 AM ET
  • 10-Yr TIPS Announcement 11:00 AM ET
  • 20-Yr Bond Announcement 11:00 AM ET

Friday

  • 3-Yr Note Settlement
  • 10-Yr Note Settlement
  • 30-Yr Bond Settlement
  • PPI-Final Demand 8:30 AM ET
  • Retail Sales 8:30 AM ET
  • Empire State Manufacturing Index 8:30 AM ET
  • Industrial Production 9:15 AM ET
  • Business Inventories 10:00 AM ET
  • Consumer Sentiment 10:00 AM ET
  • Baker Hughes Rig Count 1:00 PM ET
 

 

Sources: Econoday, CNBC, FRBSL

Post author: Charles Couch

Disclosures