Thursday 7th January 2021
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A scenario with “fiscal goldilocks”.
Wednesday was a chaotic day.
Markets rebounded Wednesday morning after it became clear that the Democrats would take control of the Senate after occupying both seats in Georgia’s runoff election on Tuesday.
However, the day’s news cycle was consumed by a pro-Trump mob that stormed the Capitol building that afternoon. This development pushed the markets off their highs, but did not completely change the tone of the day in the financial markets.
If the On Wednesday the doorbell rang on Wall Street, both the Dow (^ DJI) and the Russell 2000 (^ RUT) closed at record highs. And the biggest benefit for investors is that after careful consideration of what a “blue wave” scenario could mean for markets in 2021 and beyond, the answer is good news.
Because with a vote advantage in the Senate, democratic control is low. This probably takes off the table some of the Democratic Party’s most ambitious ideas for the next few years.
The positive outline here is simple: a narrow Democratic majority is good enough to get extra tax support, but not big enough to pass more ambitious laws like tax increases or a Green New Deal. Some investors called this on Wednesday a “fiscal goldilocksScenario.
In addition to the Dow and Russell moving to record highs, Treasury bond yields supported 10-year settlement north of 1.04%. This is a sign that investors are looking for faster growth and more spending in the year ahead. Bitcoin also hit a record high of over $ 36,000 on Wednesday. Some saw the digital currency as an inflation hedge and a potential beneficiary of consumers doing their stimulus checks and investing in cryptocurrencies.
Tailored investment group On Wednesday it was explained again how stocks perform under different party leadership scenarios. And while the answer across all combinations is that stocks usually go up, markets do reasonably well under the control of democratic government.
Since 1901, the Dow has been higher 65% of the time, averaging 17.77% in Congressional sessions where the Democrats controlled both the legislature and the White House. And since World War II, these sessions have only resulted in negative returns twice.
However, we don’t need to rely on market history to understand what investors are seeing in the current political landscape.
As We highlighted on Tuesday morningStrategists see one thing in the early days of the Biden government: the use of vaccines. And the smoother the rollout, the better the economic results should be this year.
Further economic aid also seems to be on the way. President-elect Joe Biden himself said the recently passed $ 908 billion stimulus package was “depositBefore further economic support.
And as Capital Economics said in a note released on Wednesday, “Even with unified scrutiny of Congress, we strongly doubt Biden will be able to pass his key legislative priorities.”
All the best, nothing bad. The markets on Wednesday were so excited about that.
What to see today
7:30 a.m. ET: Challenger downsizing year over year, December (45.4% in November)
8:30 a.m. ET: Initial claims for unemployment benefits, Week ended January 2 (800,000 expected, 787,000 the previous week)
8:30 a.m. ET: Continued claims, Week Ending December 26 (5.2 million expected, 5.219 million the previous week)
8:30 a.m. ET: trade balance, November (- $ 67.0 billion expected, – $ 63.1 billion in October)
10:00 am ET: ISM Services Index, December (54.5 expected, 55.9 in November)
7:00 am ET: Walgreens Boots Alliance (WBA) is expected to report adjusted earnings of $ 1.03 per share on revenue of $ 34.87 billion
7:30 a.m. ET: Constellations (STZ) is expected to report adjusted earnings of $ 2.41 per share on revenue of $ 2.24 billion
European stocks reverse early gains as Biden victory is confirmed [Yahoo Finance UK]
Bitcoin hits new highs above $ 37,000 as the crypto market tops $ 1 trillion [Yahoo Finance UK]
YAHOO FINANCIAL HIGHLIGHTS