The world watched yesterday as Trump supporters rallied and stormed the Capitol building demanding an investigation with one person dying from a gunshot from the police. During the same time, the stock market actually climbed higher. This left investors asking, “Why is the market up?
The short answer is one thing – Increased Government Spending. The markets are factoring in the strong likelihood of an additional Coronvirus stimulus bill along with a $2000 stimulus check. This will help keep consumer spending and keep everything running.
Personally, I am a pure capitalist and philosophically opposed to increased government spending, but understand that many people desperately need help. It seems rather unfair that we give billions to foreign countries and corporations while main street suffers.
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America will have to pay for the massive debt in the future, even it is only in terms of inflation.
Treasury yields climbed Tuesday amid rising worries over inflation and a rise in risk appetite. The long end underperformed with the 30-year rate up 6 bps to a high of 1.72% before dipping to the 1.696% area in late trading. The 10-year was up 5 bps to an intraday peak of 0.96%, though it closed closer to 0.945%. It’s looking to test the 1% level. The TIPS market has been reflecting some uptick in inflation expectations, with the 10-year breakeven piercing the 2% level for the first time since late 2018. The 12.2 point jump in the ISM prices paid index to 77.6, the highest since May 2018, exacerbated the worries. Meanwhile, Wall Street rebounded from Monday’s losses with the NASDAQ 0.95% firmer, while the S&P 500 rallied 0.71%, with the Dow 0.55% higher.
Today’s December ADP employment survey highlights given the threat of a negative print amid the surge in virus cases, more stringent lockdowns, and layoffs. However, we expect private payrolls to expand by 150k versus the previous 307k. November factory data are on tap, with orders seen rising 0.5% from 1.0% previously, and inventories up 0.7% from 0.2%. Weekly MBA mortgage and oil inventory figures are also due. The Fed releases the minutes from the December FOMC 15-16 meeting. Congress meets in a joint session to certify the November 3 presidential election results of a Biden victory.
Today’s Market Drivers –
- U.S. data calendar has Dec ADP employment survey, Nov factory data
- Canada data calendar empty trade and employment later in the week
- Georgia runoff elections: Democrats win one, leading in other in vote count so far
- Dollar hit fresh 33-mth lows as prospects for Democrat-controlled Senate rise
- Treasury yields have spiked above 1%, European yields also sharply higher
- European stock markets have rallied, but NASDAQ futures are selling off
- UK final Dec composite PMI revised down to 50.5 from 50.7 on weak services
- Eurozone Dec services PMI revised down, risk of technical recession picked up
- China Services PMI dropped back to 56.3 in December from 57.8
- Japan Dec Services PMI fell to 47.7 from 47.8 in Nov