Joseph R. Biden, Jr. was sworn in as the nation’s 46th president this Wednesday, and Kamala D. Harris became the country’s first female, African-American and Asian-American vice president. The speeches, songs, poems and pageantry of the day reflected much of what is best about our republic. Alas, the time for celebrating was brief as the new administration got down to the business of confronting the many crises that make this one of the most challenging times in the country’s history. These challenges, and how the administration responds to them, will have an impact on how markets fare this year – and likely in unpredictable ways.
400,000 and Counting
Another grim round number was reached earlier this week as the US death toll for Covid-19 passed the 400,000 mark. That is twice the number of deaths in Brazil, the country with the second-highest total. It is almost three times higher than India, a country with 1.4 billion people to the 331 million who live in the US. A number of executive orders signed by the new administration this week are aimed at speeding up the delivery of vaccines (100 million within the first 100 days is the goal) and putting in place a variety of limited relief measures to mitigate the economic pain. But the centerpiece item for addressing the health crisis is the $1.9 trillion relief package announced last week.
That plan is likely to face a rough time of it in Congress, where a number of Republicans have clearly signaled their intention to fight the new measure. How the Biden administration and Democrats in Congress intend to engage the discussion is at this point unclear. The goal of obtaining bipartisan support – which would be in keeping with the calls for unity that characterized much of the rhetoric at the inauguration – will face the hurdle of a filibuster-minded Senate and the time pressure created by the urgency of new cases, hospitalizations and fatalities.
Any signal that the legislation – or some form of it that comes out of negotiations – is likely to pass would potentially give more support to the rotational play into the cyclical themes that was characteristic of the first couple weeks of the year. That rotation hasn’t been as much in evidence this week, perhaps for no particular reason at all or perhaps as a sign that investors are hedging their bets while the relief bill’s fate remains unclear.
A Winter of Discontent
Next week we will get a first look at GDP for the last quarter of 2020 as the Bureau of Economic Analysis releases its preliminary report. The current consensus among economists is for GDP to rise by 4.3 percent from the third quarter to the fourth quarter. But this has been an exceptionally noisy period for macroeconomic forecasting, and the actual number that comes out next Thursday could be much higher or much lower than the estimate.
We already know that conditions early in the first quarter of 2021 are challenging, with heightened job losses, poor retail sales figures and continued stress on small businesses, particularly in the services sector. Now, markets have mostly been looking past the travails of winter and banking on the green shoots of spring. The S&P 500 has enjoyed a healthy start to the year, and there is no sign yet of any diminished appetite for the speculative crazes (Tesla, bitcoin, penny stocks) that have finally brought about the irrational exuberance that was missing throughout the entirely of the 2009-20 bull market.
The tailwinds should hold up as long as the upside narrative of vaccine deliveries and adequate relief for households and businesses to bridge the time between then and now remains in place. Much attention will now be focused on Washington to validate – or not – this narrative. It was good to see the principal figures of the new administration get right to work following the inauguration. They’re going to need to keep at it every day.