Clock Is Ticking

Clock is ticking.  Stocks traded down in yesterday’s session reflecting disappointment in the Senate.  The housing market continues to run hot due to low interest rates, high demand, and low supply… Economics 101.

N O T E W O R T H Y

Points of view.  As we draw closer, yet closer to that final countdown to 2021, it is normal, if not customary to look back on the year that is quickly heading out the door.  I will spare you yet another review of what we will all remember as a grim, often painful year.  But, depending on your personality and your personal situation, you may have found the year to be exciting, if not different. Technically speaking, it was all of those things… certainly in the markets.  Imagine if you moseyed on to the floor of New York’s iconic stock exchange last January and somehow got locked in the building with no outside contact other than all of the screens and ticker tapes which line the walls and repurposed specialist posts in the historic building.  No news, fake or otherwise.  No social media… fake or otherwise.  No newspapers… tilted or centered.  Just stocks, ticking up and down, every day from 9:30 AM through 4:00 PM. What would have concluded? Well, last March’s drops would likely have sent you into a panic as circuit breakers… well… broke in rapid succession.  You might have assumed that the world was coming to an end outside of the exchange.  But before you could have the chance to scribble your last will and testament on the back of a discarded sell ticket you picked up from the floor, you suddenly noticed lots of upward facing arrows and green-shaded numbers.  Those types of days came often and new all-time highs began to emerge throughout the building.  A bunch of new companies showed up, ones you never heard of before, and they rocketed straight up, despite no track record of earnings.  Still there were other companies that appeared, raising billions of dollars from the public, which peculiarly, had no underlying businesses… they were blank check companies in search of businesses to buy.  You might have noticed a Bloomberg screen in the corner of the room that listed corporate bonds, which are not really traded on the exchange (I am taking a little bit of literary license here).  On that screen you would see that junk bonds… sorry high yield bonds… ones who have a rating of BB or lower… appear to be all the rage. In fact if you look at the bonds that are CCC and lower… let’s call those risky… you would note that spreads on those bonds spiked earlier in the year when the stock market sold off but have since slimmed down to around +8%. That means you would be paid +8% more than risk-free treasuries to invest in a company. Last year, before you got locked in, those spreads were around +10%, and the economy was doing well.  So, you conclude that the corporate world must be healthy if investors are clamoring to buy lower credit-rated companies and drive yields down. So, given all of the information you took in, you would naturally conclude that: all is good. Companies are growing, consumers are happy, the economy is booming… and so on. All creative writing aside, all will be good eventually, and stocks do, in theory, reflect the future, which based on their performance, is expected to be bright.  If you are actually locked on the floor of the exchange in reality, you may want to keep yourself locked in… for just a bit longer.

THE MARKETS

Stocks sold off yesterday after Senate Majority Leader Mitch McConnell blocked attempts by lawmakers to take up a bill, passed by the House, that included the $2000 stimulus check proposed by President Trump.  Indexes closed above their lows of the day but were unable to recover into the black. The S&P500 traded off by -0.22%, the Dow Jones Industrial Average slid by -0.22%, the Russell 2000 Index dropped by -1.85%, and the Nasdaq Composite Index fell by -0.38%. Bonds rose and 10-year treasury yields added +1 basis point to 0.93%.

NXT UP

- Chicago PMI (Dec) is expected to have slipped to 56.3 from 58.2.

- Pending Home Sales (Nov) may have stayed steady after falling by -1.1% in October.

daily chartbook 2020-12-30