Tuesday, January 12, 2021
2021 Policies Update and the Markets
In this week’s Market Signals podcast and video, LPL Research talks about 2021 policy updates and the possibilities of higher taxes and more regulation, more stimulus, higher Treasury yields, and better stock performance in 2021.
Stocks open little changed after Monday’s risk-off tone
- Nasdaq 100 leads early gains.
- Bonds yields continue to rise.
- European markets are trading slightly lower in midday trading.
- Asian stocks were broadly higher overnight with China’s Shanghai Composite
Small business optimism declines to seven-month low
- The NFIB’s Small Business Optimism Index for December fell, missing the consensus estimate by a good margin.
- The index is now below its long-term average value.
- The economic impact of the COVID-19 surge is the main culprit for the decline.
Treasury yields pass key technical levels
- The 10-year Treasury passed 1% last week for the first time since March 2020, and the breakeven inflation rate topped 2% for the first time since 2018.
- The 10-year Treasury has been rising about .08% per month since August 2020, but we expect the pace to slow.
- There is technical resistance for Treasuries at 1.4–1.5%, an area where buying pressure may increase.
Look for more on Treasury yields in today’s LPL Research blog.
Federal Reserve policymakers discuss tapering
- Federal Reserve (Fed) policymakers are speaking openly about what it would take to begin tapering the pace of its bond purchases.
- The Fed has emphasized that it will communicate any plans to taper purchases well in advance.
- Increased discussions of tapering may be aimed at avoiding the “taper tantrum” of 2013, when Treasury yields surged after Fed Chair Ben Bernanke unexpectedly raised the prospect of tapering.
MLK Jr. Day observed January 18
LPL Financial along with the stock and bond markets will be closed Monday, January 18, in observance of Martin Luther King, Jr. Day. There will not be a LPL Research blog on Monday.
Equities fell on Monday, but selling pressure was relatively benign with only 55% of S&P 500 Index stocks down on the day. First tactical support for the S&P 500 can be found at 3630.
The United States reported 193,000 new COVID-19 cases Tuesday, and (source: COVID Tracking Project).
- The 7-day moving average of new daily cases climbed to new highs, and the 7-day average of new deaths reached an all-time high at just over 3200.
- Vaccine distribution remains the primary focus as the US administered 1.25 million doses on Monday, although this data includes catch-up data from delayed reporting over the weekend (source: Centers for Disease Control).
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