Insights

WuRevue Week Ending 1/15/2021

 

Top News:

01/11: Recognition that the market has gotten complacent on risks prompted selling in US equities, amid political upheaval, stalled vaccination rollout, and rising interest rates.  UK financial regulators warned consumers against investing in cryptoassets.

 

01/12: Amid the flurry of political news, US topped 22 million Covid cases, though the global situation remained no better, especially in Europe.  Small businesses turned more pessimistic in December than at any time since the onset of the pandemic, further illustrating challenges faced by Main Street.

 

01/13: One short-term worry was removed as the core CPI remained below the Fed’s 2% target, rising at an annual pace of 1.6% in December.  The Fed’s latest Beige Book showed that economic activity increased “modestly,” while the prospect of COVID-19 vaccines has bolstered business optimism.  After the UK regulators’ earlier warning, ECB President Lagarde also views bitcoin as a “highly  speculative asset” requiring global regulation.

 

01/14: Markets took the unprecedented second impeachment of a sitting President in stride, focusing instead on Biden’s reportedly $2T recovery plan.  Confirming the need of additional support, initial weekly jobless claims rose above expectations.  Due to this slack in full employment and the shortage of demand in major economies, Fed Chair Powell noted rates will continue to be accommodative. Separately, interim data published in a peer-reviewed journal suggest J&J’s single-shot adenoviral-vector vaccine looks promising.

 

01/15:  Renewed restrictive Covid measures led to a consecutive drop in US retail sales in December.  Meanwhile, one measure of wholesale prices showed inflation was not an immediate concern.  A preliminary measure of consumer sentiment dipped slightly in January, stabilized by vaccine hopes and stimulus prospects.  While snapping a streak of six consecutive monthly increases, UK’s GDP contracted less than expected in November. 

 

Heard on the Street:

“The first half of this year, the blue wave will probably continue to be bullish… In the second half of the year, we may be on the lookout for some consumer price inflation which would not be good for overvalued assets… We do see upward pressure on the bond yield. I think at some point the Fed says ‘Maybe bond yields should be higher since the economy is doing well.’”

— Edward Yardeni of Yardeni Research, as quoted by CNBC on 01/10/2021

 

“The equity market’s ability to rally decisively in the face of the tragic events at the Capitol on 1/6, the virus’ escalation, a poor employment report and rising yields confirm that a new, more speculative, more volatile phase of the bull market has begun… The depth of any such pullbacks in 2021 is largely dependent on yields.”

— Julian Emanuel, BTIG’s chief equity and derivatives strategist, as quoted by MarketWatch on 1/12/2021

 

 

Longer Game:

Both the incoming national security advisor and rumored Indo-Pacific czar charted a course for US-Sino coexistence, involving elements of competition and cooperation.

 

 

Bonus:

PIMCO, the world’s largest money manager, cautions against “excessive optimism” over the next 12-18 months for three reasons: 1) curtailed fiscal support as governments face ballooning budget deficits; 2) Beijing’s challenge in striking a balance between reducing credit growth and supporting businesses; and 3) a “difficult market environment” once the “easy pandemic recovery trades have played themselves out.”