Dear Valued Clients and Friends –
Lots on the economy today and some good stuff on policy. I hope you will get a lot out of this.
I was on Varney/Fox Business this morning talking about the shape of economic recovery and landscape for big tech after this week.
- Futures last night were up 70 points or so and this morning a few hours pre-market were pointing to a totally flat open across all indices. The Dow opened up and throughout the day zigged and zagged a bit, but pretty uneventful. The Dow closed almost flat (down 8 points), with the S&P 500 up 0.23% and the Nasdaq up 0.43%.
*FactSet, DJIA, Jan. 13, 2021
- The best performing sectors today were Utilities (+1.78%) and Real Estate (+1.22%). The worst performing was Industrials (-0.86%)
- I think I have been as clear as can be that our allocation to companies in the Energy sector is:
- NOT a “top-down” sector pick, but specific belief in specific companies
- A DIVIDEND GROWTH thesis, wherein long-term holders of these specific names to which I refer see superior income and organic growth-of-income – and substantially so at that!
- That said, if one were making the “technical” argument for the sector, it would likely look like this:
*Strategas Research, Technical Strategy Report, Jan. 13, 2021, p. 5
Top New Stories
- As expected, the House of Representatives voted to impeach President Trump today by a vote of 232-197 (there were ten Republicans who voted yes). The Senate trial will not begin until after the inauguration.
- Johnson & Johnson’s one-dose vaccine released some preliminary trial results today that were thrilling. Yes, one dose, without complicated storage and shipping logistics. This was only 805 trial participants – the 45,000 stage 3 trial results come in a couple weeks. But from this trial, we see a 90% antibody rate by day 29 and 100% by day 57.
- Headline CPI (consumer price index) was up 0.4% last month, in line with expectations. Services saw a third month in a row of price declines.
- The CRB Raw Industrials Index rose for the 12th day out of the last 13 days yesterday, and most agricultural commodities are in significant rally mode as well. The recent price action in commodities has been quite reflationary. And for what it is worth, this does have a strong explanatory effect on the modest uptick in the 10-year bond yield as well (orange line below is the ten-year Treasury yield; white line the commodity index)
*Bloomberg, The Boock Report, Jan. 13, 2021
- Industrial Production was up +2.5% in Europe last month
- We hear all the time how e-commerce is the new normal and the world must prepare for an increasingly digital world, right? And of course, it is true – e-commerce is huge and growing, and lots of the world will be growing increasingly cyber and digital for years to come. So what is an example of a growing industry in this “cyber” world? Well, the oldest school job you can imagine, of course, trucking! Note the pick-up in truck transportation as e-commerce escalated last year. My point? Never forget the ancillary businesses that grow (and require skilled laborers) even in changing, evolving industries.
*Strategas Research, Daily Macro Brief, Jan. 13, 2021
- Consumer sentiment was down week-over-week, but really just barely. Interestingly, the survey separated those surveyed by partisan lines and found divergent responses for the first time last week across party lines.
- I really don’t know if it is possible, but reports are that Joe Biden intends to try and get bipartisan support for the next COVID relief deal as opposed to ramming through the budget reconciliation process. I will be surprised if his caucus will let him, and if such agreement is possible, but if certain infrastructure provisions are there, and with an easier bar than in the last Congress, it is possible. I would imagine if that broke down we would be back to the reconciliation process quickly which lowers the bar needed for passage.
Housing & Mortgage
- Mortgage applications jumped 17% last week, so suffice it to say the downtick in recent weeks was holiday-driven (unsurprisingly). New purchase apps were up 8% on the week with re-finance applications up 20%.
- Lael Brainard (a top Fed governor and very possible choice for the Biden administration of future Fed head) said today that she believed the aggressive fed posture right now to support the economy would be in place for a very long time.
- Christina Lagarde, head of the European Central Bank, did a few interesting things today. She defended the view that the EU economy will grow a real +3.9% in 2021, but also maintained their readiness for expanded bond-buying and extreme monetary actions. She lambasted bitcoin and denied it is or will be a currency (most central bankers have preferred to offer ambiguous acknowledgments of its existence or avoid the subject; she went where I believe they will all go eventually). And finally, she stated that housing costs are not properly recorded in inflation indicators (all people with a rent or house payment of the last 12 years agree).
- Add Eric Rosengren to the list of Fed governors (James Bullard has been quite vocal) who are publicly adamant that (a) Rates are staying at 0% at least through 2023, and (b) Bond-buying/Quantitative Easing must continue as is for the time being, and for quite a while into the future. “I expect it to be a little while before we’re even talking about tapering on our purchases of government and mortgage-backed securities”
Oil and Energy
- WTI Crude closed at $52.86 today.
- Final DC Today of the week tomorrow will have coverage on some Biden tax plans and expectations, more COVID info, and some helpful energy updates
Fun to be quoted in the Wall Street Journal in one of their big stories of the day …
Have a good night!
David L. Bahnsen
Chief Investment Officer, Managing Partner
The Bahnsen Group
The DC Today features research from S&P, Baird, Barclays, Goldman Sachs, and the IRN research platform of FactSet.