- Weekly global market focus
- Democrats move ahead with pandemic aid package through budget reconciliation although moderate Republicans offer $600 billion package
- U.S. Covid infections fall to new 2-1/2 month lowÂ
- Q4 earnings season hits second biggest week
Weekly global market focus — Market attention in the U.S. markets this week will include (1) the prospects for a new pandemic aid bill, (2) the Reddit-induced retail volatility, with silver being the latest target, and any further fall-out for large hedge funds, (3) the improving U.S. pandemic statistics, (4) Q4 earnings season, which remains in high gear this week with reports from 112 of the S&P 500 companies, and (5) a busy economic calendar with highlights including today’s U.S. Jan ISM manufacturing index (expected -0.5 to 60.0) and Friday’s Jan payroll report (expected +50,000).
In China, the markets will carefully watch whether China’s central bank continues last week’s campaign of withdrawing liquidity from the money markets in order to cool the stock market’s speculative fervor. The Shanghai Composite index last week fell sharply by -3.43%, and Hong Kong’s Hang Seng index fell by -3.95%.
Saturday’s Chinese PMI reports were a bit disappointing. China’s Jan manufacturing PMI fell by -0.6 points to 51.3, which was weaker than expectations of -0.3 points. The Jan non-manufacturing PMI fell by -3.3 points to 52.4, which was much weaker than expectations of -0.7 points to 55.0.
Democrats move ahead with pandemic aid package through budget reconciliation although moderate Republicans offer $600 billion package — Senate Majority Leader Schumer and House Speaker Pelosi said last week that they are each planning votes this week in their respective chambers to begin the budget reconciliation process. The process is convoluted and begins with the passage of a budget resolution.
However, Democrats will now need to take a look at the $600 billion pandemic aid package that 10 moderate Republican Senators announced on Sunday. The White House has insisted that it wants a bipartisan agreement, obligating them to at least take a look at the Republican proposal. The group has asked President Biden for a meeting. A group of 10 Republican Senators would be sufficient to surmount the 60-vote filibuster. However, Republicans’ $600 billion offer is far below the $1.9 trillion package that President Biden has proposed, which means that the Republicans’ proposal may not get far.
The stock market is seeing support on the prospects for a larger pandemic aid bill through the budget reconciliation process than would be possible in a bipartisan bill. The pandemic aid bill would be a practice run for the big infrastructure and clean energy bill that Democrats are already planning to pass later this year through budget reconciliation.
The House will be in session this week as they focus on the pandemic aid bill. The Senate this week will focus on cabinet confirmations and the pandemic aid bill. The Senate has only this week for regular business before they start Mr. Trump’s trial next Tuesday (Feb 9). Republicans have already made clear that Mr. Trump will not be convicted since all but 5 Republicans recently deemed the trial unconstitutional in an amendment vote. As a result, Democrats want to get the trial over as quickly as possible so they can focus on cabinet confirmations and their legislative imperatives.
U.S. Covid infections fall to new 2-1/2 month low — The number of new U.S. Covid infections has fallen sharply in the past two weeks, raising hopes that the worst of the pandemic might be over. Infection rates are likely dropping due to recent restrictions and the end of the holiday surge. It is also possible that there is a flu-type seasonal effect for Covid and the seasonal Covid peak has already been passed. Flu typically peaks during the winter, with peaks varying greatly from year to year, anywhere from January to March.
Infection rates are also falling to some degree because as much as 15% of the U.S. population now has at least some Covid immunity because they either had the disease or received at least one vaccination dose. While there is likely some overlap, about 7% of the U.S. population has now received at least one vaccination dose and 8% of the U.S. population has been infected with Covid.
There are hopes that the virus can be brought down to nominal levels by late this year. However, uncertainties about how long the pandemic will drag on include (1) how many people are willing to be vaccinated, (2) whether the new and more transmissible Covid variants spread faster than vaccinations, and (3) whether the vaccinations are fully effective against the Covid variants.
The 7-day moving average of new U.S. Covid infections on Saturday fell to a new 2-1/2 month low of 153,814, the lowest level since mid-November. The 7-day average of U.S. Covid-related deaths remains very high at 3,147, but that is a lagging figure and should drop fairly sharply in coming weeks as fewer people become sick in the first place.
Q4 earnings season hits second biggest week — Q4 earnings season this week will see its second biggest week (behind last week), with reports from 112 of the S&P 500 companies. Notable reports this week include Amazon, Alphabet, UPS, Pfizer, Exxon on Tuesday; Paypal and Ebay on Wednesday; and Ford and Yum! Brands on Thursday.
Q4 earnings reports have been better than expected, giving a boost to the stock market. Of the 184 SPX companies that have reported thus far, 84.2% 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 -1.6% (+2.2% ex-energy), according to Refinitiv. The consensus is for calendar-year 2021 SPX earnings growth to recover by +23.7% after the expected -13.1% fall in 2020.
