- Meme stocks collapse in a positive factor for the broad market
- Democrats aim for a budget resolution this week for the pandemic aid bill
- Debt ceiling will be suspended for another year
- Jan U.S. ADP jobs report is expected to remain weak
- Jan U.S. ISM services index expected to weaken
Meme stocks collapse in a positive factor for the broad market — Meme stocks on Tuesday took a serious hit as the bubble burst almost as quickly as it inflated. Yesterday’s -10.25% plunge in March silver prices may have made clear to some Redditors that they have less pricing-power than they thought, thus encouraging stop-loss selling and profit-taking in all the Redditor’s targets.
GameStop (GME) yesterday plunged by -60%, adding to Mondays -30% loss. Gamestop has now retraced 88% of the rally seen from Jan 13-28. AMC on Tuesday also took a heavy hit and fell -41.26%.
The collapse in meme stocks was considered good news by institutional stock investors, who were not pleased by the distraction caused by the retail hordes, or by the possibility that the collapse of a big hedge fund could cause systemic problems for the U.S. financial system.
Institutional stock investors want to return to the bullish theme that the pandemic is nearly over, and that monetary largess and fiscal stimulus will nevertheless continue for months. Stock traders would also like the meme stocks to disappear since they could have been an indicator that the stock market as a whole is trading at frothy levels.
Democrats aim for a budget resolution this week for the pandemic aid bill — The House is expected to approve a 2021 budget resolution as soon as today that would provide the framework for the $1.9 trillion pandemic aid bill.
Meanwhile, the Senate is expected to continue work on the budget resolution today, possibly getting it passed by the end of the week. The Senate process is much more time-consuming since hours of debate are required, and a “vote-a-rama” is required where Senators are required to vote on a host of amendments. The Senate is trying to get the budget resolution passed by the end of this week because it has to clear the decks for Mr. Trump’s impeachment trial that begins this coming Tuesday.
Once Congress passes the budget resolution, it will be sent to the Congressional committees to compile the language for the actual bill. The bill can then be passed by a majority vote of both the House and Senate and the signature of the president. Democrats are aiming to get the pandemic aid bill passed within a matter of weeks since expanded unemployment benefits run out in mid-March.
Meanwhile, Democratic Senator Manchin is enjoying his day in the sun since Democrats need his vote to pass anything in the Senate. Mr. Manchin clearly hopes to dictate terms on the pandemic aid bill, saying yesterday that he does not support a $15 per hour federal minimum wage, arguing instead for $11 per hour.
Mr. Manchin yesterday at least voted in favor of proceeding with budget reconciliation. Without that process, Mr. Biden’s $1.9 trillion pandemic aid bill would be dead in the water since it couldn’t get past a Senate Republican filibuster.
The White House and Senate Majority Leader Schumer are clearly going to have to pay very close attention to keeping Mr. Manchin happy over the next two years in order to assure his cooperation with the Democrat’s legislative agenda.
Debt ceiling will be suspended for another year — Bloomberg reported yesterday that Democrats have a plan to extend the debt ceiling suspension for another year, until September 2022. The current debt ceiling suspension expires on August 1. The Treasury will be able to use emergency procedures to avoid a debt default until autumn. However, Democrats in the coming months plan to pass a debt ceiling extension so that the debt ceiling will not be a problem for at least another year.
The markets will be pleased if they don’t have to worry about the debt ceiling for another year. Washington politicians often end up treating the debt ceiling as a political football, when in fact, it is a nuclear bomb. A U.S. Treasury sovereign debt default could easily cause a new global systemic financial crisis.
Bloomberg said that the Democrats plan to use a 2022 budget resolution as a means to suspend the debt ceiling for the entire 2022 fiscal year, which begins October 1, 2021 and ends on September 30, 2022. The Democrats also plan to use the 2022 budget resolution as the basis for passing a big infrastructure and clean energy spending program through the budget reconciliation process, thus by-passing the Republican’s 60-vote filibuster power in the Senate.
Jan U.S. ADP jobs report is expected to remain weak — The consensus is for today’s Jan ADP employment report to show a small increase of +50,000, recovering part of December’s -123,000 decline. ADP jobs dropped in December for the first time since April as the U.S. economic recovery stalled due to the pandemic surge seen since November. ADP jobs have risen by 9.9 million from April’s trough but would need to rise by another 9.8 million to match February’s record high. Treasury Secretary Yellen yesterday said, “it will be years before the country reaches full employment again.”
Jan U.S. ISM services index expected to weaken — The consensus is for today’s Jan ISM services index to show a -1.0 decline to 56.7, more than reversing December’s +0.9 point increase to 57.7. The index in December reached a 2-1/2 year high of 60.5 but then fell back in January as service-sector executives lost some confidence as the pandemic dragged on and as retail sales fell for three straight months from October through December.
