Taking Numbers

Taking numbers.  Stocks soared yesterday as the Dow Jones Industrial Average topped the mysterious, magical 30,000 level. Exuberance was plentiful after it was reported that President-elect Biden selected former Fed Head Janet Yellen as his candidate to head the Treasury while President Trump’s Administration is cooperating with the transition.

N O T E W O R T H Y

Janet, take the wheel!  As we prepare to embark on this very different, perhaps downsized, Thanksgiving holiday one’s mind surely goes between what to be thankful for and how many inches might be added to the midsection over the coming weeks.  Similarly, markets are going through that very same thought process.  On Monday, reports surfaced that President-elect Biden was set to nominate former Fed Chairman Janet Yellen to head the Treasury. By yesterday’s session the market had processed the news and the verdict was… thankful!  Yellen headed the Central Bank from 2014 through 2018 after being replaced by current Chairman Jerome Powell.  She served at the Federal Reserve after first being appointed Fed Governor by President Clinton in 1994.  Rising through the ranks, Yellen became the President of the San Francisco Fed before becoming the Fed’s Vice Chair, ultimately rising to the lead role after being nominated by President Obama to succeed Ben Bernanke.  Her stint at the bank was cut short when President Trump decided not to re-appoint her for another 4-year term in favor of current Fed Chairman Jerome Powell.  She served at the bank under three Administrations from both sides of the aisle and she was in her post during The Dot-Com crash, The Great Recession, The Financial Crisis, and the recovery that followed.  As a pop-culture side-note, her tenure also covered light-up sneakers, Furby, renting videos from Blockbuster, mail-order video DVDs from Netflix, renting online videos from Netflix, the Macarena, flip phones (which are still a thing, I think), the invention of the iPod, the invention of the iPhone, Seinfeld, Frazier, Friends, Sex and the City, The Sopranos, Mad Men, The Office, and The West Wing.  Yes, Ms. Yellen has surely covered some ground and most certainly has the chops to hold the position.  Janet Yellen is an Ivy League-trained economist and is considered a Keynesian.  That is a type of economist that favors the use of monetary and fiscal policy to keep the economy in check. More specifically, Keynesians believe in providing incentives to consumers in order to spur economic growth.  This is in contrast to supply-siders which favor incentives for companies with the hopes that economic rewards will trickle down through the economy, ultimately reaching consumers.  This is accomplished through corporate tax cuts and big-business incentives.  Yellen, who subscribes to the former disposition, would be in favor of Government spending, low interest rates, and lower personal tax rates to spur economic growth.  In the current Administration, Trump’s Director of the National Economic Council is Larry Kudlow, who served under Ronald Reagan, notable for his trickle-down, supply-side economics.  In fact, President Trump awarded the Presidential Medal of Freedom to the father of supply-side economics Arthur Laffer, who is famous for the Laffer Curve which shows how corporate tax cuts and deregulation spur economic growth.  See where I am going with this?  Here is a bit more to bring it home.  Janet Yellen is considered a monetary “dove”, favoring lower interest rates. Interestingly, one of the reasons that President Trump nominated Jerome Powell to take her place was that he was expected to be even more dovish.  President Trump, as we know, was in favor of low interest rates, constantly jabbing at the now-Chairman to relax policies more aggressively. So, we have a dove at the Fed, responsible for fiscal policy, and we will now have a Keynesian (assuming she is confirmed) at the Treasury working with the new administration and Congress on fiscal policy.  If that isn’t positive for the economy, what is?  As aforementioned, Yellen must still be confirmed by the Senate and though she will get tough pushback, she is expected to be confirmed as she is respected on both sides of the aisle.  Finally, it is important to note that, ultimately, fiscal policy is up to the House and Senate, and their willingness to go along with the Administration will be critical. Markets seemed thankful for Janet Yellen, they can now contemplate just how much growth will be added to the Country’s economic midsection in the months and years ahead.

THE MARKETS

Stocks rallied to new highs yesterday as the current Administration formally began to assist in Biden’s transition.

Biden’s expected nomination of Janet Yellen to head the Treasury also gave markets positive momentum.  The S&P500 climbed by +1.62%, the Dow Jones Industrial Average rallied by +1.54% to a new high, the Russell 2000 Index rocketed up by +1.94% also to a new high, and the Nasdaq Composite Index rose by +1.31%.  Bonds slipped and 10-year treasury yields added +2 basis points to 0.87%.  Crude continued its rise on hopes for increased future demand carrying the beaten down energy sector up once again.  Hopes for higher interest rates and the news of the Yellen nomination gave the banking sector a boost as it added over +7% in the past two sessions alone.

NXT UP

- Initial Jobless Claims (Nov 21)  is expected to be 730, compared to last week’s 742k while Continuing Claims (Nov 14) is expected to be 6 million vs the 6.372 million from the prior week.

- Personal Consumption (3Q)  is expected to have grown by +40.9%, compared to the prior estimate of +40.7%.

- Annualized GDP (3Q) is expected to have grown by +33.1% in line with the prior estimate.

- Personal Income (Oct) may have fallen by -0.1% and Personal Spending is expected to have grown by +0.4%.

- The Core PCE Deflator (Oct) is expected to be +1.4% year over year, slightly lower than the prior month’s +1.5%.  This is significantly below the Fed’s +2.0% average target.

- University of Michigan Sentiment (Nov) is expected to be at 77.0 in line with prior estimates.

- New Home Sales (Oct) are expected to have risen by +1.7% compared to Septembers -3.5% slip.

- The Fed will release FOMC meeting minutes this afternoon at 2:00 PM EST.

- Markets are closed tomorrow for Thanksgiving and will have an early close on Friday.  Normal trade will resume on Monday along with my daily note.  I will spend the next few days with my immediate family, who I am very, very thankful for.

daily chartbook 2020-11-25