Last Week's Close
E-mini S&P 500 (March): Settled at 3880.25, up 15.75 on Friday and 175 on the week
E-mini Nasdaq-100 (March): Settled at 13,598, up 50.50 on Friday and 686.75 on the week
3 of 4 U.S. benchmarks; the S&P, Nasdaq, and Russell 2000; finished at record highs Friday. The Dow wasn’t far behind, having already achieved the same to start the week. The move comes on fiscal stimulus progress in Washington, and certainly not because of January’s job growth. Treasury Secretary Yellen said yesterday the U.S. could see full employment next year if President Biden’s $1.9 trillion fiscal stimulus package is passed. Upon a marathon of votes Thursday night and into Friday morning, Democrats in the Senate have pieced together Biden’s plan through the budget reconciliation process. The news began lifting risk assets late Thursday and those tailwinds carried into the weekend.
As for Nonfarm Payroll on Friday, only 49,000 jobs were added in January, versus 50,000 expected, but December’s job losses mounted and were revised from 140,000 to 227,000. The $900 billion in fiscal spending passed by Congress in December is buoying the deteriorating jobs landscape and it’s certainly become clear that continued support is needed amid this Covid-19 pandemic. However, to what length is the dire question. Obviously, risk assets are feasting on the $1.9 trillion price tag.
There are some distortions within Friday’s data. Wage growth for December was revised from +0.8% MoM to +1.0%, as some low paying jobs fell off the map. For January, the YoY read climbed to +5.4%, matching that from December. Regardless of such distortions, the data does support the inflation narrative and we believe inflation is showing up.
There’s no need to look further than our call to short 10-year Treasury Note futures playing out; Bill Baruch has been mapping this out on CNBC since October when the 10-year was trading at 60-70 basis points. Today, the 10-year yield hit a new swing high, the highest since March 20th, and touched 1.20%. Furthermore, the 30-year Bond has achieved 2%, the highest since February 20th, last year.
Larry Summers, the former Treasury Secretary under President Obama, seems to agree that inflation will show up. Last week, he said that President Biden’s $1.9 trillion plan is 3 times larger than the shortfall in output and could seriously overheat the economy. We can all agree that this administration, like its predecessor, wants to get the ship off to sea on the right course and is willing to take extravagant measures. Again, the question is whether it’s too extravagant.
Fed Chair Jerome Powell seems to think that some inflation is easier to control than no inflation at all. Last year, they made the historic commitment to symmetrical inflation targeting: allowing the economy, after a lengthy period of low inflation, to symmetrically run hot above 2%.
We’ve said it before and will say it again; the pain trade is for the 10-year yield to move above 1.25% and quickly achieve 1.5%. Markets can’t ignore a high-velocity move to 1.5%.
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