Stocks hit with profit-taking, Stimulus negotiations continue, Jobless Claims miss, Hot housing prices

US stocks are mixed as investors head for the sidelines and brace for a few weeks of hard stimulus negotiations.  A fast-track to a stimulus deal will be difficult as Democrats begin the debate over raising minimum wage to $15 an hour.  Tech is the outperformer as the record run into small caps takes a breather.  Wall Street saw limited reaction to economic data releases that confirmed the trends with jobless claims and the housing market.  This week, financial markets got what they wanted from Fed Chair Powell, another dovish affirmation and tame inflation which punted taper tantrum thoughts.

Risk appetite dwindled away as reflation focus shifted to cold-war tensions between China and the West.  The EU wants a unified stance with the US to take on China.  Fairer trade policies will complicate the global economic recovery trade but will likely be more of a bump in the road.  The risk that is brewing however is that if too many geopolitical risks arise from China, a cold-war could be reignited.  The news that BBC World News was banned from China could have greater repercussions if we continue to see more hard lines drawn against the West.   

Today’s Senator meeting on infrastructure was productive and highlighted the desire for bipartisan action.  Infrastructure spending talks before we get Biden’s trillion-dollar COVID plan finalized is putting the cart in front of the horse.   Wall Street’s base case is for more COVID relief and some form of infrastructure spending, but if Senators put too much on their plate now, that will likely lead to partisan politics.  Some pivotal discussions over COVID relief are already being delayed as Congress goes through the motions of Trump’s impeachment trial. 

US Data

Jobless claims declined slightly to 793,000, worse than the consensus estimate of 760,000, and down from the previous week’s higher revised level.  Expectations are high that now that the US is behind the holiday COVID surge and with the help of an improved vaccine rollouts that jobless claims should finally drop significantly in the coming weeks.  The total number of claims participating in all programs rose 2.6 million to 20.435 million Americans.  A steady decline to pre-pandemic jobless claims level will be unlikely if virus variants derail reopenings. 

The Mortgage Bankers Association fourth quarter report showed delinquencies fell from 7.65% to 6.73%, a positive sign that homeowners are doing a better job at making their mortgage payments.  The housing market was the bright spot for the economy last year and no one is surprised that home prices rose to a record, beating the peak seen in 2005.  House prices jumped 14.9% to $315,000 last quarter, the largest increase since 1990. 

FX

The dollar was mixed on the day, stronger against the yen and pound, but lower to the euro and Australian dollar.  With much of Asia on holiday, currency traders will closely watch to see if dollar flows improve if Treasury yields continue to climb higher.

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