- Weekly global market focus
- Senate holds Trump trial while committees work on Biden pandemic aid bill
- U.S. pandemic figures continue to improve
- Q4 earnings season remains in gear
Weekly global market focus — The U.S. markets this week will focus on (1) Washington politics as the Senate conducts Mr. Trump’s impeachment trial and as Congressional committees compile the details of President Biden’s $1.9 trillion pandemic aid bill, (2) whether the U.S. pandemic statistics continue to improve and the impact of the various Covid variants, (3) any new targets of Redditor retail traders, (4) this week’s $126 billion quarterly refunding operation of 3-year, 10-year, and 30-year securities, and (5) a light U.S. economic calendar with the highlights including Wednesday’s Jan CPI (expected +1.5% y/y vs Dec’s +1.4%) and Friday’s preliminary-Feb U.S. consumer sentiment index (expected +1.9, after Jan’s -1.7 point decline).
In Europe, the markets will continue to watch the pandemic statistics and assess the fall-out from the current lockdowns. In Italy, the markets are watching to see whether former ECB President Draghi will be able to carry out his mandate of forming a new government without the need for a disruptive snap election.
In China, the markets continue to closely watch for signs of how the Biden administration will handle the ongoing technology and trade tensions with China. China’s week-long Lunar New Year holiday begins this Thursday.
Senate holds Trump trial while committees work on Biden pandemic aid bill — Washington’s political class will be consumed this week with the trial of Mr. Trump, which starts on Tuesday. The trial won’t make much difference to the markets since Mr. Trump is no longer president. The trial could take no longer than a week.
The odds of a Trump conviction are virtually nil, considering that only 5 Republican Senators in a vote two weeks agreed that the trial is even constitutional. That suggests that the other 45 Republican Senators have already decided to vote to acquit based on their contention that the trial is unconstitutional because Mr. Trump is no longer president, regardless of whatever facts and law the Democratic impeachment managers might present.
The U.S. Constitution does not explicitly say whether impeachment trials can be held after an official leaves office, but impeachment trials have been held for top federal officials in the past even after that official left office by quitting or because his term expired.
It would take 67 Senators to convict Mr. Trump, which means that 17 Republican Senators would have to vote to convict, assuming that all Democratic Senators vote to convict. The betting odds at PredictIt.com, for whatever they are worth, are currently at only 7% that Mr. Trump will be convicted.
Meanwhile, Congressional committees are now in the process of compiling the legislation that will define President Biden’s $1.9 trillion pandemic aid bill. The House and Senate late last week took the first step towards passing the bill through the reconciliation process by passing a 2021 budget resolution, which provides the framework for the pandemic aid bill.
The budget resolution instructs the committees to produce the legislation by February 16, allowing the House to vote on the bill during the week of February 22. Democrats intend to pass the pandemic aid bill before expanded unemployment benefits expire in mid-March.
The impetus for the pandemic aid bill received a boost from last Friday’s weak Jan unemployment report, which showed a stalled U.S. labor market. Dec payrolls rose by only +49,000, weaker than expectations of +105,000. Also, Dec payrolls were revised lower to a decline of -227,000 from -140,000. Moreover, Jan private-sector jobs rose by only +6,000, which was far below market expectations of +163,000.
U.S. pandemic figures continue to improve — The 7-day average of new Covid infections on Saturday fell to a new 3-month low of 120,938 cases, the lowest since mid-November, according to data compiled by Bloomberg. The single-day number of Covid infections on Saturday fell to a new 1-1/2 month low of 106,570 cases.
The markets are hoping that the worst of the Covid pandemic has passed and that new Covid infections will continue to decline through spring. U.S. officials are hoping that most Americans who want a vaccination will have received one by summer. However, the Covid variants continue to be a wildcard since they might spread more quickly than vaccinations. Also, the current vaccinations may be less effective against the new Covid variants.
Q4 earnings season remains in gear — Q4 earnings season remains in gear this week with reports from 82 of the S&P 500 companies. Notable reports this week include Twitter and Cisco on Tuesday; GM, CME Group, and Under Armour on Wednesday; and Walt Disney, Kellogg, Tyson Foods, and Verisign on Thursday.
Q4 earnings reports have been better than expected, providing support for the stock market. Of the 286 SPX companies that have reported thus far, 83.6% have beaten the consensus, which is much better than the long-term average of 65.3% and the 4-quarter average of 75.5%, according to Refinitive.
The consensus is for SPX earnings growth in Q4 of +2.4% (+6.2% ex-energy), which is substantially better than the consensus of -10.3% as of January 1, according to Refinitiv. The consensus is for calendar-year 2021 SPX earnings growth to recover by +23.5% after the expected -12.3% decline in 2020.
