Markets move beyond Capitol chaos, employment concerns, dollar rallies

US equity markets hit record highs

US stocks are rising to fresh records as the focus switches from the US Capitol mayhem to fresh economic stimulus.  Financial markets can look past the chaos now that President Trump pledged an orderly transition.  It is hard not to like equities now that we are beyond all the big risk events: Trump’s acceptance of the presidential election, a clear Senate outcome, effective COVID vaccines, and hints of Fed taper tantrum.  An orderly transition for Biden means he can quickly implement his strategy for squashing the coronavirus, delivering more economic stimulus, and moving along his infrastructure spending agenda.  The Democrats won the Senate by the slimmest of margins and that means Biden will not be able to deliver sweeping tax and regulatory reform.  Investors may expect small caps to outperform but do not have to abandon their FAANG stocks.

Facebook banned President Trump until his term ends and Shopify took his e-commerce websites offline.  Both Facebook and Shopify shares held onto their earlier gains and were unfazed by the ban announcements.  Facebook has survived boycott threats in the past and right now it seems investors don’t believe today’s actions will become an issue.  All eyes are now on Twitter and Alphabet’s YouTube to see if they match Facebook’s move.

Financial markets showed little reaction to another elevated weekly initial jobless claims.  Applications for unemployment benefits decreased by 3,000 to 787,000, slightly better than the consensus estimate of 800,000 initial claims.  There is no doubt that the current virus surge will lead to further shutdowns and that will continue to keep pressure on the labor market.

Economists have a consensus estimate of a gain of 50k for the December nonfarm payroll report, with a forecast spanning -400k to +250k.  Surging virus cases and fiscal support uncertainty in December weighed on hiring and traders should not be surprised if hiring turns negative for the first time since the April report.

Double dip concerns will only reinforce prospects for further stimulus now that Democrats were able to deliver a Blue Wave.

Today’s ISM Services reading looked better than it was.  The headline ISM services index came better-than-expected at 57.2, higher than the consensus estimate of 54.5 and the prior reading of 55.9.  Supply chain disruptions from COVID restrictive measures were the main reason the service gauge unexpectedly rose.  Further COVID restrictions will weigh on the index next month.

The dollar is rallying as inflation expectations send Treasury yields higher and as leveraged-and real-money accounts rush to cover their excessively bearish greenback bets. Bets against the dollar became overcrowded and the dollar could see a substantial bounce here.  No one doubts that the Biden administration will deliver aggressive stimulus packages in his first 100 days, but for many investors now is the time to take profits.

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