PITTSFIELD — Investors marked time throughout the week waiting for President-elect Joe Biden’s $1.9 trillion economic relief package to be announced on Thursday night. They were not disappointed.
The size of the proposed bill was within the expectations of most market participants. As such, it was a classic "sell on the news” event Friday morning. The debate going forward will be how much of the new administration’s proposal will ultimately become law. That remains to be seen, since Federal funding for states and local governments and the $15 per hour minimum wage will unlikely receive Republican approval.
Investors aren’t really taking that on board quite yet. They are too busy worrying about the potential for armed insurrection around next week’s inauguration, and what, if anything, the departing president might do on his way out.
Stocks pulled back, as did the interest rate of the benchmark, the U.S. Ten-year Treasury Bond, while the U.S. dollar gained a bit. The timing of Biden’s proposal couldn’t have been better, however, given the disappointing results of the latest economic numbers and the weekly employment report.
For the first time since August, jobless claims spiked as 965,000 Americans filed new jobless claims for the week ending Jan. 9. To put this new data into perspective, the worst reading during the financial crisis was 665,000 job losses. Retail sales for November and December were also down far more than investors expected. I have been warning readers for months that the economic fallout would be severe, thanks to our failure to combat the spread of the coronavirus. I expect the data to get worse over the next month or two.
I hope to see the fairly speedy passage of some of this relief legislation, once Biden is sworn into office next week. The legislation may be passed in a piecemeal kind of process. Most politicians (now that the elections are over) will likely have an appetite for providing $1,400 in additional checks to consumers. They may also go for the additional expansion of unemployment insurance by $100, which would bring the total weekly total to $400, and the child tax credit to $3,000 per child. An additional $400 billion to boost vaccine infrastructure might pass as well with a little tinkering.
Remember, Biden does not have a functional majority in the U.S. Senate, so horse trading within his own party, and that of the GOP will be required. Throughout his speech, the President-Elect hammered home that time was of an essence in bringing relief to suffering Americans. As such, it may prove be that a some-but-not-all approach would be the most expedient avenue to deliver relief.
As readers know, my high-end target for the S&P 500 Index had been 3,800. We reached that level last week and since then there have been one or two attempts to push past that level without success. It is my opinion that we need to pause and work off some of the overbought conditions that prevail throughout the equity market. We could see a 1-to-3 percent decline in the next week or so, which would be a positive development, if we want the markets to continue to move higher.