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  • Weekly market focus
  • Markets look ahead to House passage of the pandemic aid bill
  • U.S. pandemic statistics continue to improve
  • Q4 earnings season winds down


Weekly market focus
 — The U.S. markets this week will focus on (1) Fed Chair Powell’s testimony before Congressional panels on Tuesday and Wednesday, (2) House consideration this week of the $1.9 trillion pandemic aid bill, (3) whether the U.S. pandemic statistics continue to plunge, (4) whether U.S. Treasury yields continue to rise and negatively impact stocks after the 10-year T-note yield last Friday rose to a new 1-year high of 1.36%, (5) whether petroleum and natural gas prices fall back after last week’s upward spike on the recent cold snap that extended south into Texas, (6) the Treasury’s sale of $209 billion of T-notes this week, (7) the tail end of Q4 earnings season with reports this week from 66 of the S&P 500 companies, and (8) any developments from this Friday’s G-20 meeting of finance ministers and central bank chiefs.

The European markets will continue to focus on the pandemic statistics and the degree to which countries can reduce pandemic restrictions.  Also, ECB President Lagarde will deliver a keynote speech today at the European Semester Conference.

In China, the markets will be getting back to the first full week of trading after the recent week-long Lunar New Year holiday.  As expected, China’s 1-year Loan Prime Rate (LPR) was left unchanged over the weekend at 3.85%.  China’s state media over the weekend reported that the PBOC will maintain a “neutral” monetary policy stance, which alleviated some of the recent concern that the PBOC might tighten liquidity to curb speculative activity in the Chinese stock market.  China’s Shanghai Composite Index last Thursday rallied to a new 5-1/2 year high.

Markets look ahead to House passage of the pandemic aid bill — The full House and Senate will return to session early this week after last week’s recess.  The House this week, possibly on Friday, is expected to approve President Biden’s $1.9 trillion pandemic aid bill.  The bill would then go 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 large 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.

U.S. pandemic statistics continue to improve — The number of new U.S. Covid infections continues the free-fall that started in mid-January.  The 7-day average of new U.S. Covid infections fell to a new 4-month low of 69,254 on Sunday, which is down by -73% from the peak of 256,820 seen on January 11. 

The 7-day average of U.S. Covid-related deaths fell to a 2-1/2 month low of 1,914 on Saturday, which is down by -43% from the record high of 3,366 seen on January 13.  The Covid death rate remains high but has finally started dropping in response to the sharp drop in initial infections seen in the past several weeks.

At least 20% of the U.S. population now has acquired some degree of immunity to Covid.  There have been 60.5 million vaccination doses given in the U.S. and 12.7% of the U.S. population has received at least one dose, according to Bloomberg’s vaccine tracker.  Meanwhile, 27.4 million Americans (8.4% of the U.S. population) have been infected with Covid and recovered, meaning they have some level of immunity.  

The wildcard, of course, continues to be the Covid variants that have invaded the U.S. from the U.K., South Africa, and elsewhere.  These variants are more transmissible and may be less inhibited by the current vaccines, particularly the South African variant.

Q4 earnings season winds down — Q4 earnings season winds down this week with reports from 66 of the S&P 500 companies.  Notable reports this week include Berkshire Hathaway and Marathon Oil today; Intuit and Home Depot on Tuesday; Lowe’s, TJX, L Brands, and Nvidia on Wednesday; and Salesforce.com, HP, and Monster Beverage on Thursday.

Q4 earnings reports have been better than expected, providing support for the stock market.  Of the 399 SPX companies that have reported thus far, 81.7% 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 +3.7% (+7.6% 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.

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