Any concerns about a correction proved to be short-lived, with the S&P 500 roaring back to a new high to close the week. The S&P 500 picked up just under 5% from last Friday's close. Momentum had faded some over the prior weeks, with many of the reopen stocks taking a breather. That narrative quickly reversed with 10-year sovereign yields surging higher across the globe for much of the week. We interpret this as an undeniably positive signal about the future path for global economic growth. Still, it is curious that the mood could be so different this week compared to last. Perhaps we must chalk up last week's softness to the strangeness surrounding the GameStop/AMC retail frenzy.
Stimulus continues to work its way through Congress, and though Democrats are headed down the budget reconciliation path, it is clear the size of the package is going to work its way down from $1.9 Trillion. Biden has engaged with Republicans on crafting a more targeted response. While $1,400 checks are a sticking point, it is possible that this round will be phased out at a much lower income level. Some stimulus is better than no stimulus, and the market appears to be applauding efforts to push it down the line.
While the appropriate size of the package is up for debate, it is also clear that the economy needs another booster shot. January's jobs report showed a gain but came in below expectations. Prior month revisions also disappointed. The Unemployment rate dropped to 6.3% but was driven mostly by an exodus of over 400K from the labor force. Workers, especially those on the lower end of the income scale, really do need the extra $1,400 to get to the Covid finish line.
It is easy to get lost in the week-to-week or day-to-day gyrations of the market and the slew of economic data points that hit the wire. If we take a step back, our focus should remain on a few simple concepts. One is that the Fed and the Treasury have simultaneously flooded the zone with stimulus, and they will continue to do so as necessary until we reach the end of the pandemic. Two is that the pandemic will eventually end, and consumers and businesses will get back to a more normal albeit different existence. Finally, most large companies are weathering the pandemic remarkably well, and many at the unfortunate expense of smaller businesses. We expect this adds up to a path higher for stock prices. It surely won't be a smooth ride, but we believe the case is most certainly bullish.
Preston May, CBE®
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