Stocks Fall as Stimulus Plan Proposed, Investors Looking for Resilient Earnings
Last Week Review
Investors honed in on virus developments, President-elect Joe Biden’s stimulus proposal and the economic recovery, pushing global equities down 1.2%. Investors believe the stimulus plan supports economic growth, but they worry Congress may add limitations to the plan. The economy faces difficulty, as shown by lackluster U.S. retail sales, low inflation and a weak job market. Despite this, the 10-year Treasury yield touched a nine-month high of 1.15%, reflecting an improving growth outlook. It ended the week down 3basis points at 1.08%.
Vaccine Distribution Improves
The U.S. altered its distribution guidelines to allow people 65 and older and adults with pre-existing conditions to receive a shot. Also, doses previously held for second shots can be released. The changes should make about 50 million more people eligible for vaccination and speed up behind-schedule inoculation as vaccine distribution catches up to production. Johnson & Johnson released an early study that showed its vaccine generated a long-lasting immune response. Pending late-stage trial data and regulatory approval, this vaccine may further add to the global supply. Despite slower-than-expected distribution, there is still a broad expectation for a vaccine-driven return to normalcy in 2021.
Investors See Through Political Noise, Focus on Stimulus
Investors showed little reaction to the U.S. House of Representatives’ vote to impeach President Donald Trump, as they focused instead on Biden’s plan to support the economy. He proposed a new virus relief package worth roughly $1.9 trillion, including stimulus checks, state and local aid, extended jobless benefits, funds for vaccine distribution and a minimum wage hike. Congressional opposition is likely to limit what is ultimately passed. Meanwhile, Federal Reserve leaders tried to walk back talks of a potential reduction of quantitative easing from some members. Eventually, the Fed made clear it is nowhere near tapering quantitative easy tapering as the economy is far from its inflation and employment goals. The U.S. core Consumer Price Index came in well below the Fed’s 2% target at 1.6% year-over-year and initial jobless claims were much higher than expected at 965,000.
This Week Preview
Virus Mutations Add Fire to Virus Risks
New virus strains appear to be aiding a step-up in virus cases. Many infectious disease experts believe current vaccines will prove effective against new virus strains that appear over the near-to-medium term. The market impact of mutations should be limited as long as vaccines still work against them. Virus developments will continue to harvest investor attention this week.
Earnings Resilience Expected
Large U.S. company earnings have exhibited a noticeable level of resilience to this year’s pandemic pressures. Many investors expect this trend to continue as more companies report this week, including Goldman Sachs and Bank of America out of the financials sector on Tuesday. A step back in aggregate earnings resilience would likely act as a market headwind, while better-than-expected earnings have the potential to fuel investor appetite to take risk.
Virus Economic Effects on Watch
U.S. and Europe flash Purchasing Managers’ Index data is expected to slightly soften from prior levels. The European Central Bank and Bank of Japan will both meet this week, though major policy changes are unlikely as both central banks monitor the economic effects of intensifying lockdowns.
Biden Becomes President
On Wednesday, Biden will be sworn in as President of the U.S. Investors don’t expect market-related impacts from possible armed protests. Stimulus negotiations will be key market developments.
See our latest insights and research.
IMPORTANT INFORMATION. For Asia-Pacific markets, this information is directed to institutional, professional and wholesale clients or investors only and should not be relied upon by retail clients or investors. The information is not intended for distribution or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. Northern Trust and its affiliates may have positions in and may effect transactions in the markets, contracts and related investments different than described in this information. This information is obtained from sources believed to be reliable, and its accuracy and completeness are not guaranteed. Information does not constitute a recommendation of any investment strategy, is not intended as investment advice and does not take into account all the circumstances of each investor. Opinions and forecasts discussed are those of the author, do not necessarily reflect the views of Northern Trust and are subject to change without notice.
This report is provided for informational purposes only and is not intended to be, and should not be construed as, an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice. Recipients should not rely upon this information as a substitute for obtaining specific legal or tax advice from their own professional legal or tax advisors. Information is subject to change based on market or other conditions.
Forward-looking statements and assumptions are Northern Trust’s current estimates or expectations of future events or future results based upon proprietary research and should not be construed as an estimate or promise of results that a portfolio may achieve. Actual results could differ materially from the results indicated by this information.
Past performance is no guarantee of future results. Performance returns and the principal value of an investment will fluctuate. Performance returns contained herein are subject to revision by Northern Trust. Comparative indices shown are provided as an indication of the performance of a particular segment of the capital markets and/or alternative strategies in general. Index performance returns do not reflect any management fees, transaction costs or expenses. It is not possible to invest directly in any index. Gross performance returns contained herein include reinvestment of dividends and other earnings, transaction costs, and all fees and expenses other than investment management fees, unless indicated otherwise.
Northern Trust Asset Management is composed of Northern Trust Investments, Inc. Northern Trust Global Investments Limited, Northern Trust Fund Managers (Ireland) Limited, Northern Trust Global Investments Japan, K.K., NT Global Advisors Inc., 50 South Capital Advisors, LLC, Belvedere Advisors LLC and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.
© 2021 Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A.