THE WEEK IN REVIEW: Jan. 17 – 23
When there’s lovin’ in the air, don’t fight it – just keep breathin’.
Joe Biden took over last Wednesday as our 46th president. He wasted little time issuing executive orders championed by the Democrats and reversing executive orders that undid some of the prior administration’s policies. President Biden also reaffirmed his commitment to fighting COVID-19 by requiring the wearing of masks on federal property as his first order of business. Within 48 hours of his swearing in, we also rejoined the Paris Agreement on climate change and the World Health Organization and shut down the Keystone XL Pipeline from Alberta, Canada.
Biden also announced a reversal in immigration policy by stopping deportations, ceasing new construction of the southern border wall and ending new enrollments in the Migrant Protection Protocols. There was a little something for everyone in the Biden coalition, but it’s hard to say if any of these policies will greatly impact the economy. Judging by the market’s reaction, none of these actions seemed to be a market mover.
Biden’s inaugural address was mostly benign, calling for unity and including all the familiar enjoinders from the campaign. I couldn’t help feeling that the optics were just awful, especially with 25,000+ National Guard troops and thousands of police in attendance to ensure a peaceful ceremony. The predicted “violent” crowds at the U.S. Capitol and at state capitols across the country never materialized. Due to the heavy security and coronavirus controls, there were no crowds to speak of anywhere.
Even with a new administration, our problems haven’t changed or gone away. We are still dealing with the virus, our economy is in rough shape and the country is still divided. The promise of 100 million vaccine doses in 100 days is all well and good — even Hoover promised the country a “chicken in every pot” — but we need more than slogans. Starting an administration with the shutdown of the XL pipeline and its resulting loss of jobs and wages, plus the prospect of higher energy costs, doesn’t seem like a wise move.
We don’t have much to go on yet, but the tasks in front of Biden are formidable. If we are going to speak about unity, we had better start talking about compromise, because we will have no agreement on anything if each side refuses to budge on the issues. But last week, love was in the air!
Markets mostly unchanged as earnings roll on
The market was mostly flat last week, but we are still near all-time highs. There was no news to propel us upward. The potential inauguration day violence, much hyped by the media, did not materialize but did create some agitation. I was pleased to see CNN remove the grim coronavirus tracker, but given the increased level of infections and deaths, the tracker may be more useful than ever to maintain awareness. The virus will not go away if we simply stop talking about it.
New unemployment claims continue to be elevated, and nearly 3 million people collecting unemployment have lost their benefits due to a lack of new stimulus. Companies continue to report good earnings, but markets are not as focused on those unless they surprise to the downside.
Instead, markets are mostly hovering, waiting to see how a new round of stimulus will look. The second impeachment trial for the now-departed President Trump appears to be moving forward, which will further delay any policy debates. The trial may provide a lot of fodder for constitutional scholars, who will go back and forth on whether the process is constitutional or even relevant now that Trump is out of office. Still, I view the whole affair as a waste of time and a distraction.
It is time to move on with the business at hand and quit obsessing over a departed president who is no longer impacting policy. Biden needs to put together a coherent, methodical and logical plan to move us out of the current state of affairs and back on the path of prosperity. That’s the guidance the market is waiting for to get moving again. Markets liked that there was more stimulus coming and reacted to that, but now we need to see just what shape new stimulus will take.
Remember China?
As we closed out 2020, China was the only major economy to emerge from the coronavirus-induced economic slump with positive GDP growth. To be fair, the 2.3% growth China posted was low by its recent historical standards, but it would have been a decent level for us. The fact remains that the country that initially reported this vicious virus escaped or “skillfully managed” much of the economic punishment the rest of the world has suffered.
Is there a lesson here? By some estimates, China is poised to surpass the U.S. as the world’s No. 1 economy by 2028. Unless we get our act together and focus on maintaining our lead, we can all expect a decline in our global influence and standard of living. I have always believed that each new generation should inherit a better standard of living than the one before. For the first time, I am beginning to believe that this won’t be possible, given the mountains of debt we are accumulating and the lack of focus on maintaining our global economic leadership. The jury is still very much out on the Biden administration and its policy toward China, but an increasingly dominant China will not be good for any of us.
Coming this Week
  • A full week of trading will begin with a Federal Reserve meeting and a consumer confidence report on Tuesday. It’s hard to say if we’ll get anything new from the Fed; interest rates are low and there has been no indication that they will consider raising rates anytime soon, given the pandemic-weakened economy.
  • The first reading of Q4 2020 GDP will be reported on Thursday. After the blowout Q3 reading (+33.4%), it will be interesting to see just how much growth has slowed due to the continued drag from lockdowns and the lack of a stimulus deal for most of the quarter.
  • Still on the radar this week: new unemployment claims (Thursday), reporting of Q4 earnings (all week), and personal income and outlays plus consumer sentiment (Friday).
  • Keep your antennae up for any new policy announcements from the new administration. With markets at or near record levels, it wouldn’t take much to spook the herd.
Have a great week!
Tom Siomades, CFA
Chief Investment Officer
AE Wealth Management
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