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Markets were up last week, the first week of the new year. This was in spite of the events that took place in Washington last week. In fact, Markets basically ignored all of it. With one exception: more stimulus is coming. We don’t know how much, and we don’t know when, but it’s coming. And Markets pretty much ignored everything else and went up (my view).
The S&P roller coaster last week: down a lot, up, up, up a lot, and up.
Fed Minutes: The Fed meets eight time each year. The meetings normally are over two days (a Tuesday and a Wednesday). A statement is released summarizing what took place, and the Fed Chair now comes out at the end of each meeting for a press conference. Three weeks later the Minutes of that meeting get released. And that’s what came out last Wednesday afternoon. Interest rates remained at almost zero. That won’t change in 2021. It may not change in 2022 or 2023. Asset purchase will continue at the present rate: $120 billion/month; for all of 2021 at this point. To give you some context… after 2008 the purchases were $85 billion/month. Remember how bad things were after 2008? And the Fed is purchasing 41% more now. Does that give you some perspective on where we are?
ISM: Their manufacturing number rose from 57.5 up to 60.7. Numbers above 50 imply economic expansion.
Jobs: It missed. The number was -140,000. Expectations, at the beginning of last week were for +100,000 jobs. But ADP’s employment report missed, coming in at -123,000. So, expectations were revised on the U3 number down to +50,000 to +65,000 depending on where you get your data. And the number came in much lower than that. The prior number was +245,000. The question that’s out there is… is this a one-off or a new direction.
Jobless claims: They came in at 787,000.
Unemployment: The rate stayed at 6.7%. Expectations were for it to tick up to 6.8%.
The most powerful/important member of Congress: Who do you think it is? Pelosi? Schumer? McConnell? McCarthy? Those four certainly have lots of power. They lead the delegations for their respective parties. But, as things stand today, the most powerful member of Congress is Senator Joe Manchin from West Virginia. And this will be the case for the next two years. He alone, at this point, will decide what legislation will pass and what legislation won’t pass. With the Senate being divided 50-50, if Manchin agrees with the policy the Democratic House has sent over, if the vote takes place on party lines, VP-elect Harris will break that tie. But if he sides with Republicans, the D’s will potentially lose 49-51. Joe Biden will want to implement policy that is clearly different from the direction Trump did. But there is a split in the Democratic party (as there is in the Republican party). Just how far left the policy moves will depend on how Joe Manchin votes.
Manchin – part two: Consider West Virginia. A formerly deep blue state when I was growing up in the 60’s and 70’s, it’s now a deep red state. R’s hold the State House 3-1; the Senate 2-1. There are only two Democrats of significance from West Virginia: Senator Manchin and the State’s Treasurer. The rest are all R’s. Fellow Senator Shelley Capito (R) was just re-elected 70-27. There are three U.S. reps from WV… all R’s. In the closest U.S. rep race the R won by 26 points. Joe Manchin was re-elected in 2018. But he only won by three points (49-46). And that was with him voting for Justice Kavanaugh.
Manchin – part three: Joe Manchin pledged before the November election that he would resist and vote against removing the Senate filibuster. He would resist votes to increase the size of the Supreme Court. One could surmise he would not be in favor of a lot of what’s in the Green New Deal. Two reasons: first… he doesn’t believe in those things; second… it would be political suicide. Manchin, from my view, appears to be more of a fiscal conservative (much more akin to the former Blue Dog Democrat). If those members of the Democrat coalition who desire more progressive/socialist policies, if they push Manchin too far, he could just switch parties (which would change the balance of power in the Senate). I believe that would be well received in WV. So, for the next two years (as things stand today) whatever policy initiatives are moved forward will pretty much be determined by Joe Manchin. I can tell you one thing… he’s in my prayers (literally).
Inflation: We’ll get updates from the CPI (consumer) and the PPI (wholesale). The prior CPI was 1.2% YOY. The prior PPI was 0.8% YOY.
Retail sales: The range is for a number between -0.5% to +0.6%. The consensus is for -0.1%. The prior read was -1.1%.
Indicator focus: CPI, Fed’s Beige Book (Wed); jobless claims (Thu); PPI, industrial production, business inventories, and retail sales (Fri).