Wave? No, Blue Ripple
2021-01-11 Market Update.
In a choppy week highlighted by stronger economic data and additional political turmoil in Washington DC, the S&P500 closed at a new all-time high of 3825.
Equity markets rose this week alongside surprise Democrat victories in the Georgia Senate runoff votes. The S&P 500 rose 1.8%, led by energy and banks as interest rates rose. The election results give the party a 50-50 split in the Senate, or effective control as Vice President-elect Harris holds the deciding vote. Meantime, the economic data showed strength in ISMs (think cyclicals like railroads and manufacturing) tempered late in the week by a decline in December payrolls (think service businesses like travel and leisure).
Market moves
Last week’s moves saw the market price in more stimulus (until a Friday squiggle), some positive outcomes in areas like clean energy and cannabis due to the new political make-up in DC, and heightened prospects for infrastructure spending.
Higher long-term Treasury yields led to the markets rotations in the equity market moves, as the 10-year yield pushed above 1% for the first time since March. Banks rallied with a steeper curve and further potential support to limit credit losses. Big industrial names were higher on increased infrastructure prospects. Small cap stocks that are typically work when long-term rates are rising benefited from the Blue Ripple. Many retailers and consumer discretionary also jumped on the prospect of larger stimulus checks. Large cap technology lagged, with the FAANGs mostly down in the 2%-to-3% range in the immediate aftermath of the results of the election and more rotations.
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