Weekly Market Report 2-8-2021
It was a far less volatile week for the markets last week. The S&P 500, Nasdaq, and Russell 2000 (Small Cap Index) all closed at new all time highs on Friday, as weak employment reports spurred the increased likelihood and speed of Congress passing larger stimulus plans. This weekly market report covers more details on all of the above, and you can find all the previous Monday Market Update’s here.
Monday Market Update 02.01.2021
After two consecutive weeks of decline, the S&P 500 rallied last week, ending the week at a new all time high, up 4.6% for the week and 3.5% for the year.
While the major economic news for the week was the January Employment Report, which was not good, the flailing jobs market data increased expectations for more fiscal stimulus, sooner rather than later… expectations further boosted by the Senate taking preliminary measures and voting to back Biden’s $1.9 trillion stimulus plan in the wee hours of Friday morning.
Last Week in the Stock Market
While last week’s market news was dominated by the volatility spike in a handful of names, driving concerns about overall market stability, this week’s market was dominated by Congress’ progress on the next round of stimulus.
With it looking more and more likely $1.9 trillion in additional stimulus is coming, funded by issuing more treasury bonds, the stock market rallied up… while bond prices continue to fall, pushing yields – and the interest rate the government will have to pay to issue more debt – higher.
Related Post: Why the National Debt Matters
GameStop Update
For those who followed the GameStop saga in last week’s market recap, it didn’t take long for efficient market forces to bring the share price back to reality. The stock was down more than 80% this week, as the WallStreetBet’s traders turned their efforts towards the silver market.
Treasury Secretary Janet Yellen did meet on Thursday with the Federal Reserve, SEC and CFTC (like the SEC for the derivatives market, where WallStreetBet’s trader began targetting silver last week). According to statements from the Treasury Department, the meeting was to review whether recent market volatility in certain names and brokers’ responses to it “are consistent with investor protection and fair and efficient markets.”
Following the meeting, the Treasury Department indicated that “core market infrastructure was resilient,” but “agree on the importance of the SEC releasing a timely study of the events.” I’ll be sure to share once the SEC releases its findings, and any regulatory changes resulting from them.
It should also be noted that after the spike in overall market volatility last week, the VIX returned to normal levels this week.
The Economic Weekly Market Report
This week’s major economic releases were all about the labor market. We got the usual weekly jobless claims, but also The Employment Situation Report for January.
I often get asked the difference between the two… weekly jobless claims are based on people actually filing for and receiving unemployment benefits. The monthly Employment Situation report is compiled based on two surveys. The Bureau of Labor Statistics surveys both households and businesses to assess the labor market. The household survey gives us demographic data and data on labor force participation. The business, or establishment survey, gives us overall payroll data (hours, wages, total employment), and insights on the labor market by industry.
Weekly Jobless Claims
I continue to closely watch the labor market for signs of improvement, as it has experienced the most negative impact in the economy, and its recovery is most critical to a full economic recovery for everyone. On Thursday, weekly jobless claims for the week ending 1/30 continued to decrease, falling to 779,000 from 847,000 the week prior, though still remain at highly elevated levels and above initial weekly claims seen in the Fall.
Total insured unemployment, under regular state programs, is down to 4.6 million people, an insured unemployment rate of 3.2%. However, this is a fraction of those covered under the expanded pandemic and emergency programs at both the state and federal level.
Total insured unemployment under these programs for the week ending 1/16 (this comes at a longer lag) is far greater – 17.8 million.
This is just higher than expanded benefits were at the highest point of the Great Recession. It was nearly 2x as high in June 2020.
The Employment Situation
The Employment Situation is released by the Bureau of Labor Statistics on the first Friday of every month for the month prior. In January, just 49,000 nonfarm jobs were added to payrolls – falling short of economists’ expectations and leaving the market still 10 million jobs short of where we were at the start of 2020.
Despite the weak growth in jobs, the headline unemployment rate fell to 6.3%. Unemployment is calculated as those without jobs and actively looking divided by the labor force. The labor force has declined by more than 4 million people in the last year, as people become discouraged in looking for work in a difficult labor market or choose to leave all together.
Women represent a disproportionate number of those who have left the workforce in the last year – especially when you take into account women were a smaller portion of the labor force to begin with. Women account for 2.5 million of the 4.4 million who have left the workforce since the end of 2019.
The labor market impact has also fallen very unevenly – by race, by educational attainment, and by industry. Black and Hispanic unemployment rates remain significantly above the national unemployment rate, as do unemployment rates for those with a high school degree or less, while those who are college-educated have returned to near-full employment levels.
Across industries, the Leisure & Hospitality and Mining, Oil & Gas industries still have double-digit unemployment levels, and Mining, Oil & Gas is also the only industry with more unemployed persons today than at the peak of national unemployment in April 2020.
A survey of Family Finance Mom followers shows nearly 1/3 of you have had your job impacted in the last 12 months. A similar number have had income impacted (as some have experienced drops in salary or hours, without losing jobs entirely). And of those impacted, nearly half remain so. I share these results to try to make a connection between all of you and reported data, to make it more tangible and relateable.
The Political Weekly Market Report
The big news in politics this week, as it impacts the market and personal finance, is the move by Congress to pass the $1.9 trillion stimulus via budget reconciliation. This is a procedural move, which allows the Senate to pass the bill with a simple majority vote. This can only be done on bills regarding spending, revenue (taxes), or the federal debt limit, and only done once per year on each topic. It was used in the past to pass the Affordable Care Act in 2010 and to pass the “Trump Tax Cuts” in 2017.
On Friday, the Senate voted 51-50, with Vice President Harris casting her first tie-breaking vote, to pass the budget resolution, paving the way for the stimulus to pass with a simple majority. Despite the White House meeting with a group of moderate Republicans early last week on their $600 billion stimulus proposal, Congress has clearly decided to move forward on this unilaterally. Not a single Republican Senator voted in favor of the budget resolution. Now that the procedure is approved, both the House and Senate will begin weeks-long work to actually write the details of the stimulus legislation.
As part of the budget resolution process, several amendment votes were called in the Senate which indicated bipartisan support around some limitations on the stimulus. This included ensuring the $15 minimum wage phase in does not start during the pandemic and that the $1,400 stimulus checks are not provided to “upper- income taxpayers.” Now, we wait for actual legislation to be written to see the precise details.
Weekly Market Recap – All Asset Classes
Two things to take note of in Year-to-Date market performance – 1) notice the continued outperformance of small cap stocks and Emerging Markets, as investors pursue sources of greater return, despite volatility risk and 2) notice the declines in long-term treasuries and investment grade bonds.
In the face of increased fiscal stimulus spending, entirely funded by additional debt issuance, we continue to see treasury prices fall, and yields – the interest demanded on them – increase. This means new debt issued by the government to fund stimulus will have a higher, albeit still low by historical measures, interest rate.
Virus Update
While the vaccine continues to be distributed and rolled out nationwide, we still have many months ahead of us of continued precautions.
For the third week in a row, we saw all numbers head in the right direction. New cases and hospitalizations are all down signficantly, with new cases, in particular, seeing significant declines (down double-digits in each of the last two weeks). We do still see an uptick in daily deaths, but recall deaths come at a 2+ week lag to new cases, so we would hope to see those follow the cases trend in the weeks to come.
We also continue to see progress in the vaccine rollout. Bloomberg is tracking the rollout and administration state by state. We saw a 20.5% increase in vaccines distributed and a 40% increase in vaccines administered last week relative to the week prior. So far, over 8.8 million people have completed their double dose regimen, representing 2.7% of the population. Many experts believe we need to get to 65-80% vaccinated to achieve herd immunity, which would allow life to resume with some level of normalcy.
In other vaccine progress news, last week, Johnson & Johnson announced it has submitted its single shot vaccine to the FDA for Emergency Use Authorization. The FDA announced it will meet on February 26th to review it. If approved, this would add a third vaccine to those available in the United States, and as a single-dose regimen with less stringent storage requirements, could signficantly accelerate distribution.
The Week Ahead
Look for updates on Initial Jobless Claims and 30-Year Mortgage Rates every week. The biggest economic news coming up this week the release the of January Consumer Price Index (CPI). This is a measure of the average change in prices paid by urban consumer for a market basket of consumer goods and services, and is our consumer indicator for inflation.
For More Information…
For a more detailed history of all the metics shared, check out When Will the Economy Recover – updated monthly, which gives a more detailed overview of market and economic indicators, as well as their historical context. I’ll be working on updating it through the end of January this week.
Questions? Feel free to leave them in the comments below, or in the weekly question box in my Instagram stories.
