2021 can only end better than it has started. Despite the political divides in the United States, the politicians across the country will be spending the next year rebuilding the U.S. economy – so major policy reversals are unlikely in 2021. Bipartisanship may be the byproduct of the siege on the Capital building this week so let’s hope we can all get back to business and our lives by this time next year. Until then, there is still more work for us to get back what we lost in this country.
I expect that the Federal government will supply more stimulus to the economy in the coming weeks and that the next major piece of legislation will be an infrastructure bill that will take many months to negotiate. For the stock market, this means that we are going back to basics. Rebuilding the economy means industrials, energy and the banking sectors will see increased business and let’s not forget that commodities will benefit if the deficit spending by the Federal Government results in inflation.
Now, let’s take a look at the S&P 500 below. I like this long-term chart as it shows what the price action looks like in a trend (blue parallel lines) and when it does not which you can see on the far right of the chart (red expanding lines). For now, we have broken out of a 2.5 year period of high volatility and now there needs to be some consolidation before a trend emerges once again.
On the far right of the chart there looks to be an ending diagonal which implies a pullback to the 3200 area or a 15% correction. Stocks could trade sideways and consolidate so a larger correction does not have to happen. However,the market is vulnerable to this scenario as we get through the peak of the second wave of the pandemic. If there is breakdown, we should see it relatively soon.
Chart of the Week!
Economic & Central Banking Snippets
- U.S. employers shed 140,000 jobs in December while the unemployment rate held steady at 6.7% in December. The drop was induced by new restrictions on activity as the pandemic raged out of control. Leisure and hospitality, which includes restaurants, hotels, and amusement parks, tumbled 498,000. Restrictions in California alone may have cost roughly 700,000 jobs according to researchers at Jefferies. Meanwhile, those sectors most sensitive to the state of the business cycle actually grew: construction rose 51,000, manufacturing 38,000 and retail trade 121,000. Temporary layoffs rose 277,000 while permanent layoffs fell 348,000, a reversal of the recent pattern. All this points to improving underlying conditions.
- There haven’t been so many single-family homes under construction in the U.S. since 2007, yet many of these new houses won’t be for sale. Investors are building tens of thousands of houses expressly to rent in a bet that Americans will keep flocking to spacious suburban living even if they can’t afford to buy homes. (WSJ)
- Some private economists are upgrading their forecasts for 2021 and 2022 after Democrats secured control of the U.S. Senate, ensuring narrow control of both houses in Congress and a smoother path to more fiscal stimulus. “Our best guess…is a spending package of around $900 billion passed in the next few months. If realized this would boost GDP growth this year by about 1.5%-points to 5.3% (Q4/Q4), and 0.5%-point next year to 2.6%. (WSJ)
Macro Snippets
- The EU has doubled its order of the Pfizer/BioNTech’s COVID-19 vaccine to 600 million doses and authorized the Moderna vaccine as it faces criticism for a slow rollout. Pfizer’s vaccine may provide protection against the new virus strains that originated in Britain and South Africa, according to a new study sponsored by the company that hasn’t been peer reviewed yet. (Investopedia)
- Samsung, a bellwether for the tech industry, expects fourth quarter operating profit to rise 25% to approximately 9 trillion Korean won ($8.2 billion). (Investopedia)
- Facebook is forcing the 2 billion users of WhatsApp to share personal data with the social network by February 8 or have their accounts deleted. Critics suspect Facebook is after phone numbers and contact books to better target advertising. The new terms of service has sparked an outcry and a huge surge in interest in the Signal messenger, which doesn’t collect data. (Investopedia)
- The foreign-trade gap in goods and services expanded 8% from the prior month to a seasonally adjusted $68.14 billion in November, the widest deficit since August 2006. The goods deficit was the widest on record. Imports increased 2.9% from October, while exports rose 1.2%. (WSJ)
- Bitcoin continued its blistering start to 2021, crossing $40,000 for the first time on Thursday.
- Vegan milk brand Oatly is planning a 2021 initial public offering that could raise $1 billion, according to CNBC. Founded in Sweden around three decades ago, it was valued at $2 billion in July and includes Blackstone, Oprah Winfrey and Natalie Portman among its backers. It has raised a total of $241.4 million in funding over four rounds, says Crunchable. (Investopedia)
- U.S. regulators have said banks and saving/loan associations known as thrifts can use blockchain networks and stablecoins to facilitate payments. “The letter states that blockchains have the same status as other global financial networks, such as SWIFT, ACH, and FedWire,” said the Blockchain Association. “This is a giant advance for crypto because it paves the way for these networks to be a formal part of the U.S. financial infrastructure.” (Investopedia)
That is all for now and thank you for being a subscriber!
Regards,
President – Kisco Capital