Santa-Fed came to town this week as the Federal Reserve announced in their Wednesday meeting that their bond buying program will be here in size and for the foreseeable future. The Fed has kept this program for most of the last ten years which has capped interest rates and robbed savers of safe income. Economists will tell you that we should have inflation with these programs but that has not happened yet. Perhaps the trillions in deficit spending and stimulus may finally push up inflation in 2021 as there will likely be a strong bid for commodities as the world gets inoculated and back to work. Sectors such as steel, copper and energy have certainly come to life after many years of weak performance so that may be a hint of what happens next year.
I have seen many calling for an overvalued market and a top but I would like to point out that the large-cap technology stocks (Apple, Google, Facebook, Amazon, etc..) are not pushing up the indices here. Market breadth is very healthy which means more stocks are participating in this rally and small cap stocks are leading which we have not seen in many years. There is a shift towards small/medium companies that are benefiting from the pandemic (cloud/software), housing is the healthiest since the mid-2000s and commodities based stocks are coming out of multi-year bear markets.
The S&P in the chart below looks to be settling into a range after see-sawing during September and October which is a good sign. One thing to note for next week is that there was a buy wave in the last thirty minutes of trading on Friday and after the close the Fed announced that banks can now start paying dividends and are allowed to buy-back their stock. Several banks made announcements after the close that these programs would be turned back on in short-order which is a positive for trading on Monday.
Happy Holidays and New Year! I will be back with another addition in January.
Chart of the Week!
At over $21 trillion, the U.S. holds the title of the world’s largest economy—accounting for almost a quarter of the global GDP total. However, the fact is that a few select cities are responsible for a large share of the country’s total economic output.
Economic & Central Banking Snippets
- Housing starts in November totaled 1.55mm, above the estimate of 1.54mm vs 1.53mm in October as this sector is the busiest it has been since the mid-2000s.
- The Fed is back in the spotlight as they announced in their latest meeting on Wednesday that they will continue to buy at least $120 billion of bonds each month which lays a safety net under the capital markets. And it looks like they are starting early as the size of the Fed’s balance jumped by $119B this week to a record high of $7.36 Trillion – the most they have added since May. The statement from the Federal Open Market Committee (FOMC) didn’t provide an end date, but it did say it would continue those purchases “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.”
- The Bank of England decided to keep its main lending rate steady at the all-time-low of 0.1%. The central bank voted to maintain its target stock of asset purchases at £895 billion as Brexit trade deal negotiations continue. The outlook remains “unusually uncertain” and recent restrictions on activity are expected to weigh more on activity in Q1 2021. (Investopedia)
- U.S. retail sales dropped 1.1% in November from the prior month, the second straight monthly decline. Even with the latest declines, total retail sales are above their pre-pandemic peak, a testament to a rapid rebound in spending on goods after April lockdowns lifted. But the topline number masks major shifts in where consumers are spending and which businesses are struggling. (WSJ)
- Cryptocurrency exchange Coinbase has filed to go public in the U.S. as the price of bitcoin soars. Founded in 2012 by a former Airbnb engineer and a former Goldman Sachs trader, the firm has raised $547.3 million in funding and was valued at $8 billion back in 2018. It has over 35 million verified users in over 100 countries.
- Steelmakers are straining to keep up with resurgent orders from U.S. manufacturers, just months after preparing for a long, pandemic-driven slump in steel demand. Steelmakers idled about one-third of domestic production capacity for flat-rolled steel this spring when their customers canceled orders and closed plants to slow the spread of the new coronavirus. However, steel demand for cars, appliances and machinery has rebounded, thanks in part to rising purchases from homebound consumers. The benchmark price for hot-rolled sheet steel has doubled since early August to a two-year high of $900 a ton, according to S&P Global Platts. (WSJ)
- Google was hit with yet another antitrust lawsuit yesterday, its third since October this year. This latest case relates to alleged anticompetitive conduct to maintain its dominance in search and was filed by a bipartisan coalition of 38 attorneys general. Texas and nine other states filed their lawsuit on Wednesday, and the Justice Department sued the tech giant along with eleven state attorneys general in October.
- FedEx reported its highest quarterly sales on record on Thursday after the logistics group handled millions of additional packages during the online shopping boom in the run-up to the US holiday season peak. FedEx, which has a global network spanning 680 aircraft, 200,000 vehicles and 600,000 employees, has introduced a range of peak charges of more than a dollar a package, boosting revenues. (FT)
- The U.S. Federal Trade Commission has ordered 9 internet platforms to explain what they do with personal data, their advertising and user engagement practices, and how their practices affect children and teens. The companies include Amazon, TikTok parent company ByteDance, Discord, Facebook, WhatsApp, Reddit, Snap, Twitter, and YouTube.
That is all for now and thank you for being a subscriber!
President – Kisco Capital