- Weekly global market focus
- Markets look ahead to next week’s House passage of the pandemic aid bill
- Covid infections continue to plunge
- Q4 earnings season starts to wind down
Weekly global market focus — The U.S. markets this week will focus on (1) any developments on the $1.9 trillion pandemic aid bill that the House is expected to approve next week, (2) the severe energy disruptions being seen in Texas and elsewhere in the U.S. due to frigid weather, (3) the meme-stock phenomenon as Citadel’s founder Ken Griffen and Robinhood Markets CEO Vlad Tenev, among others, testify Thursday before the House Financial Services Committee, (4) FOMC policy with Wednesday’s release of the Jan 26-27 FOMC meeting minutes, (5) a fairly busy earnings week with 55 of the S&P companies scheduled to report, and (6) the Treasury’s sale of 20-year T-bonds on Wednesday and 30-year TIPS on Thursday.
The cold wave that has extended south into Texas has wreaked havoc with the energy markets, causing a +5% rally in both natural gas and gasoline prices on Monday. There are rolling electricity blackouts, power plant shutdowns, and the threat of refinery shutdowns.
In Europe, the markets are pleased as Mario Draghi took over as the new Italian prime minister, with the Italian Parliament holding confidence votes this week. Key events on the European economic calendar include today’s Feb ZEW German expectations index (expected -2.0 to 59.8), Thursday’s Jan Eurozone consumer confidence index (expected 0.5 to -15.0), and Friday’s Eurozone manufacturing PMI report (expected -0.6).
The Asian markets will remain quiet with China on its week-long Lunar New Year holiday through Wednesday.
Markets look ahead to next week’s House passage of the pandemic aid bill — The full House and Senate are on recess this week for the Presidents Day holiday, although some Committees will be conducting business.
The House next week is expected to approve President Biden’s $1.9 trillion pandemic aid bill. The bill will then be forwarded to the Senate, where it requires only a majority vote because of the budget reconciliation process.
However, the pandemic aid bill could get trimmed in the Senate because any individual Democratic Senator has the power to dictate the terms of the bill. Democrats need all 50 Democratic Senators to vote in favor of the bill. Democratic West Virginia Senator Manchin has already said he thinks that the eligibility requirements for the stimulus checks should be tightened and that he does not favor a hike in the minimum wage as high as $15 per hour. However, the size of the bill is not likely to fall much from $1.9 trillion, and will still be enough to provide substantial stimulus to the U.S. economy over the next few quarters.
President Biden has already started talks with top Congressional leaders about the infrastructure bill that he promised during his campaign. Democrats will undoubtedly be forced to use the budget reconciliation process again to pass an infrastructure bill in order to bypass a Senate Republican filibuster. Since Democrats can use the budget reconciliation process only once per fiscal year, the markets will be watching carefully to see how much spending gets stuffed into that bill and whether tax increases are also attached to that bill.
Covid infections continue to plunge — The 7-day average of new U.S. Covid infections on Sunday fell to a new 3-1/2 month low of 90,689, according to data compiled by Bloomberg.
However, the number of Covid deaths remains very high, with a 7-day average of 3,366, largely because of a spike up to 5,476 deaths last Friday. Still, the number of Covid deaths should soon start to drop sharply since it is a lagging indicator and since new Covid infections started dropping sharply four weeks ago in mid-January.
The sharp decline in the Covid infection rate is due to (1) continued public restrictions, mask requirements, and social distancing measures, (2) the fact that as much as 20% of the U.S. population now has some Covid immunity from either having recovered from the disease or having had at least one vaccination dose, and (3) the possibility that Covid is seeing a seasonal drop such as that seen for flu around this time of year. However, the wildcard continues to be the Covid variants, which could spread quickly and evade current vaccines.
The U.S. has now delivered a total of 54.6 million vaccine doses, representing 16.6 doses for every 100 people, according to Bloomberg’s vaccine tracker. The U.S. is currently administering 1.64 million doses per day, which represents 0.5% of the U.S. population.
Q4 earnings season starts to wind down — Q4 earnings season starts to wind down this week with reports from 55 of the S&P 500 companies. Notable reports this week include Royal Caribbean Cruises and Agilent Technologies on Tuesday; Marathon Oil on Wednesday; and Walmart on Thursday.
Q4 earnings reports have been better than expected, providing support for the stock market. Of the 372 SPX companies that have reported thus far, 82.0% 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 +3.4% (+7.3% 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 +23.3% after the expected -12.0% decline in 2020.
