The winds turned in Washington with the transfer of power in the White House. The transition from 45 to 46 was beyond bumpy. As a discounting mechanism, the Market keeps looking forward. Never before has a President begun his term with the Stock Market at an all-time high, until now. It happened while the nation still deals with the pandemic. Defeating the virus is the top mission for the Biden administration.
The honeymoon is going to be short. In fact, it might be over already. President Biden signaled that he expects the pandemic to worsen before it improves. The CDC stated there could be 100,000 more deaths in the US just in the coming month. Not good. Not good at all. The task of combatting Covid and stimulating a broad economic recovery is massive. They’re both linked. The Market has priced in better days ahead. Getting there ain’t going to be easy. But we’ll get there.
Corporate America has backed President Biden, signaling open dialogue will ensue, which can shape policy and provide more stability for business at home and overseas. International markets have responded quite favorably. The weak Dollar has certainly been a contributor too.
Janet Yellen cleared a hurdle unanimously confirmed as Treasury Secretary, with a bold call to “Go Big” to kickstart the Economy. Considered the most dovish of all past Fed Chair’s, the Market loves her in this new role. Importantly, Yellen said that Biden’s current focus is relief for American families hit by the pandemic, not raising taxes, and it could be quite sometime before that discussion resurfaces. The Market clearly liked that, exploding higher off those words.
Politics remain in play as Republicans are pushing back on the price tag of the proposed stimulus plan. The $1.9 Trillion number is causing some sticker shock. There’s also a number of items that are considered non-starters. It could turn out to be a multi-month process. The Market is reacting a bit. Friday’s sell-off was evidence.
Our Washington sources continue to cover the developments step-by-step. Here’s the latest:
Many Republicans have criticized Biden’s plan as “too much too fast” after having recently supported a $900B package less than three weeks before Biden unveiled his plan. Biden likely knows this, so his package should be viewed as an opening offer in what could be another round of lengthy and contentious coronavirus relief negotiations. The risk for Biden is that the more concessions he makes to try to woo Republican lawmakers, it could cost him votes among progressives. Biden would need to win the support of at least ten Senate Republicans to pass his plan, assuming he has the support of all 50 Democrats to pass through regulator order to meet the 60-vote filibuster threshold. Republicans have opposed including state and local aid in subsequent coronavirus relief packages unless it was paired with liability protections, which Biden did not include. One option might be to revive portions of the bipartisan framework proposed in December, which included $160B in funding for state and local governments and liability protections. Members of that group included Senators Joe Manchin (D-WV), Susan Collins (R-ME), Mark Warner (D-VA), Bill Cassidy (R-LA), Jeanne Shaheen (D-NH), Lisa Murkowski (R-AK), Angus King (I-ME), Mitt Romney (R-UT), Maggie Hassan (D-NH), Rob Portman (R-OH), and Dick Durbin (D-IL). It seems unlikely that Senate Republicans will support efforts to raise the federal minimum wage to $15/hour. Many southern and rural states could attract businesses because they have a lower operating cost and would lose that advantage if it were to go away. Some Republicans will likely argue that raising the minimum wage is something that is not related to the coronavirus pandemic. Biden likely knew this and wanted to include it to provide Republicans with a win as something they can say they were able to remove. Another area for potential compromise is the $400/week extension through September. Republicans might be more inclined to support the current $300/week amount for a shorter duration extension than September. The $1,400 stimulus checks are also an area that will likely be contentious. Most Republicans, and some Democrats, oppose providing the benefit to those who have not been impacted by the coronavirus.
The biggest challenge for the new President is going to be navigating the center with opposition on both sides. Getting bipartisan support will be hard enough. But some of his opposition will come from the left-wing of his own party. The call for unity in America is a noble one. We sure need it. But unfortunately, it faces so many obstacles. One of the biggest is that second impeachment. That’s for another day.
The Bull case remains focused on eternal optimism for more fiscal stimulus, even though the $1.9 Trillion plan has little chance of passing. The Market also maintains a high level of vaccine optimism despite the slow initial rollout. Elevated case counts and risk from new strains don’t seem to rattle its outlook. Better-than-expected earnings are also providing a Market boost.
That said, the rally has been narrowing again. The leadership this week came from Growth, rather than the more economically sensitive Value and Cyclical stocks. The Tech Titans led again. Apple, Amazon, Microsoft and Google have acted like safe havens the last few months while other areas sell-off. The last time we saw this was late August, into September. It was a prelude to correction. That was back when the Titans drove the S&P. They reached all-time highs then. Microsoft and Amazon haven’t seen those levels since. Apple just made it back this week. Only Google is at new, all-time highs. The Tech Titans report earnings starting next week. They are the Kings of Corporate America. They will be Market moving.
Today we lost another American icon. Hank Aaron passed away. Aaron broke the most treasured record in American sports: The Home Run Title. In 1974, amidst a barrage of death threats, Hammerin’ Hank passed Babe Ruth as the all-time Home Run King. I consider myself so lucky to have met him back in my days with the Braves. He was soft-spoken and mild-mannered. He was no showboat. But his presence was giant. Hank Aaron was a titan himself. He was known for his strong hands and wrists. Hank played the game the way it was supposed to be played. Our nation lost another great one. But his legacy will live for generations.
Have a nice weekend. We’ll be back, dark and early on Monday.
Mike
