Weekly Market Update 1-25-2021
Last week, both the S&P 500 and tech-heavy Nasdaq hit new all-time highs on Thursday, buoyed by hopes for the $1.9 trillion stimulus package proposed by Biden, before selling off on Friday, but ending the week up overall. Read on for details on last week market and economic news, and you can find all the previous Monday Market Update’s here.
Monday Market Update 01.25.2021
Last week, the S&P 500 bounced back +1.9%, following the prior week’s decline. The market continues to be volatile – hope for control of the pandemic with the vaccine rollout and the promise of additional stimulus funds continue to drive the market up, while recent economic data releases, particularly around the labor market, has been less promising and tempered some investor enthusiasm. We are also in the middle of earnings season, with roughly 1 in 4 public companies expected to report earnings this coming week, which can also drive volatility in individual stocks.
Last Week
Equity markets hit new highs last Thursday, as President Biden officially took office and got to work, signing 30 Executive Orders (see them all here) in his first 3 days in office. Much of the market rally is pinned on hope for additional stimulus funds, which was further fueled by the Senate Finance Committee testimony of Treasury Secretary Nominee, Janet Yellen:
“I believe that the current economic crisis calls for robust fiscal support, but also believe it is critical that we put our country on a path towards long-term fiscal sustainability. In this vein, I’ve called for more fiscal support since the early days of the pandemic and continue to do so. Without question, we have to be conscious of our debt, but it’s clear that fiscal stimulus to support the economy and the working families most affected by the impact of COVID-19 is our most urgent priority.”
– Dr. Janet Yellen to Senate Committee on Finance Testimony, 1.21.2021
On Thursday and Friday, we also got more economic data – weekly jobless claims, showing little to no improvement in the labor market and existing housing sales data, showing limited supply continues to fuel double-digit price increases.
Economic News
On Thursday, weekly jobless claims for the week ending 1/16 decreased from the week prior to 900,000, though still at highly elevated levels and above claims seen in the Fall.
Total insured unemployment, under regular state programs, is now 5.1 million people, an insured unemployment rate of 3.6%. 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 is currently 16.0 million. The drop off from the prior week is sadly unlikely due to people finding jobs, and more likely due to the expiration of benefits, as many programs are capped at a certain number of weeks of benefits.
In other economic news, Friday, the National Association of Realtors released its monthly update on existing home sales. Existing home sale prices continue to be up double-digits vs. a year ago as inventory remains extremely limited in the face of high demand. As of December, existing home listings were down 26.4% vs. the year prior, representing just 1.8 months supply given current demand. A normal market is more like 4.0 months supply.
This impact on prices is happening nationwide, across every region. The median price of existing homes in the West is rapidly approaching $500,000, while median home prices in the Northeast have increased the most – +20.6% – in 2020.
Politics Update
The major political news this week was obviously the inauguration on Wednesday, and the 30 Executive Orders signed by President Biden, given very clear insights into his Administration priorities.
Of most immediate impact financially and economically will be his revocation of the Permit for the Keystone Pipeline, as well as a push for a $15 minimum wage.
Excerpt from “Executive Order on Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis”
Proponents in support of the pipeline argue this kills 10,000 jobs and over $2 billion in income. It is also likely to increase energy prices. Those in favor say it only immediately impacts 1,000 jobs (the rest were to come in the future), and that the environmental preservations are more critical.
The most questions I received last week were around his push for a $15 minimum wage. Initially, this was rumored to come as part of the $1.9 trillion stimulus proposal, which would have to be adopted by Congress. President Biden has, however, included this aim for federal workers in Friday’s Executive Order on Protecting the Federal Workforce:
For more on the economic impact of increasing the national minimum wage to $15 (which to be clear is not yet on the table), check out the start of my Live Q&A from last Wednesday:
Markets Update
Two things to take note of in Year-to-Date market performance – notice the strong outperformance of small cap stocks. Also, as I mentioned last week, 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.
Virus Update
While the vaccine continues to be distributed and rolled out nationwide, we still have many months ahead of us of continued precautions.
Last week, we saw all numbers head in the right direction for the first time in weeks. New cases, hospitalizations and deaths are all down, with new cases, in particular, seeing significant declines (down 21% vs. the prior week).
We also saw significant improvement in the vaccine rollout. Bloomberg is tracking the rollout and administration state by state. We saw a 33% increase in vaccines distributed and a 54% increase in vaccines administered last week relative to the week prior. So far, 3.14 million people have completed their double dose regimen, representing just 1.0% 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.
The Week Ahead
Look for updates on Initial Jobless Claims and 30-Year Mortgage Rates every week. The biggest news coming up this week are comments from the Fed from their regularly FOMC meeting, as well as the first estimate for Q4 2020 GDP. It is also the thick of earnings season, so you may see volatility in individual names as they report Q4 earnings results.
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.
Questions? Feel free to leave them in the comments below, or in the weekly question box in my Instagram stories.
