Wall Street’s rich stock market bubbled but more investments Jae-gil Cho’s New York Stock Market observatory

This is the’New York Stock Market Observation Deck’ that examines the major variables of the US New York Stock Market this week and considers the direction of the stock market.

Last week, U.S. Treasury yields had a big impact on the stock market. As the 10-year interest rate surged in the short term, the Dow, S&P 500, and Nasdaq were weak. However, in the second half of the week, government bond yields have been showing signs of subsidence.

A historic event is scheduled this week. Joe Biden takes office as the 46th President of the United States after twists and turns. The fact that large-scale fiscal mobilization will be used to prevent the recession is a positive factor for the stock market, but growing concerns about tax increases and tightening regulations are a burden.

It is also worth keeping an eye on whether protesters in support of President Donald Trump will cause an unpredictable turmoil. Here are some of the events to watch this week.

-Closed the New York Stock Exchange on Monday 18th as Martin Luther King Day
-President Joe Biden took office (20th) and whether or not to re-enact the violent demonstration
-Movement of the 10-year US Treasury Bond yield
-4Q results of major companies (159, including Netflix and Intel)
-Appointment of Finance Minister Janet Yellen’s hearing and speech
-Number of weekly new unemployment benefits claims (21 days)

▶ How did the New York Stock Market close last Friday?

On the 15th, which ended in the early morning of last Saturday in Korean time, the Dow and S&P 500 and NASDAQ all fell. The Dow fell 0.57% to 30,814.26, the S&P 500 fell 0.72% to 3,768.25, and the Nasdaq fell 0.87% to 12,998.50.

The next president, Joe Biden, announced a massive $1.9 trillion in stimulus package at 7 pm the previous day, but it remained weak after the opening. The biggest reason seems to be that expectations of stimulus measures have already been reflected in the market.

Observations have been raised that it is uncertain whether the new stimulus law will pass Congress smoothly. To mobilize this large-scale fiscal, tax increases will be inevitable, and concerns have emerged from the market that it will burden the US economy in the long run.

The stimulus package included additional cash ($1400 per person) for Americans, additional unemployment benefits ($400 per week), and extended payment period (March → September this year). Biden also said it will announce another stimulus next month, focusing on infrastructure investment and climate change response.

The sluggish consumption indicators released on Friday also negatively affected the stock market. In the marketplace, retail sales in December last year were expected to decline 0.1% from the previous month, but the Ministry of Commerce found that it was down 0.7%. In the aftermath of the re-proliferation of the corona, consumption, including restaurants, has drastically decreased.

The Michigan Consumer Attitude Index (preliminary) for January of this year was also only 79.2, which is less than the last month’s final value (80.7) and the market forecast (79.4). Consumption accounts for two-thirds of the US economy, so it is a decisive factor in the economic recovery.

▶ How was the New York Stock Market in the past week?

Even on a weekly basis, the top 3 indexes were sluggish. The fall in the second half of the market was relatively large. The Dow fell 0.9% over the week, while the S&P 500 and NASDAQ fell 1.5%.

U.S. Treasury bond yields, which had sharpened sharply this month and raised stock market unrest, fell from the second half of last week, but there was a lot of anxiety. The 10-year yield ended at 1.087% per year on the 15th (Fri). The 10-year Treasury bond yield surpassed 1% a year for the first time since March last year on the 6th of this month, and has since soared to the highest annual rate of 1.19% and dropped slightly.

If the government bond interest rate rises gently, there is no problem, but if it surges for a short period of time, companies and households may face a rise in loan interest rates without preparation, which inevitably has a negative impact on the economy.

Falling government bond yields (increased bond prices) are also not a positive sign. This is because it reflects concerns about the sluggish economy. The market evaluates that it is best to move smoothly, to the extent that it meets market expectations.

Last week, concerns began to emerge in the market over QE reduction or tax increase. Dallas Federal Reserve Governor Robert Kaplan said “I hope to reduce the scale of QE this year.”

Tapering means shrinking programs that the Fed has bought for $120 billion per month. If realized, the market liquidity expansion that has continued since June last year will stop. However, Fed Chairman Jerome Powell has hurriedly evolved, conscious of market uncertainty, saying, “Now is not the time to discuss the end of the bond buying program.”

Wall Street’s remarks about tax increases can be confirmed by James Knightley, chief economist at investment bank ING. He said, “The state debt of the United States exceeds 100% of its gross domestic product (GDP),” he said. “The Biden government will have no choice but to raise the corporate tax, income tax and capital gains tax.” As the market’s interest shifts from fiscal expansion to taxation, it could be another source of anxiety.

▶ This week, the launch of a new government will be the biggest issue.

With President Trump’s disapproval in elections behind, the Biden era begins this Wednesday. The stock market has expressed expectations for a new government. Since the presidential election on November 3, last year, the top three indices, including the Dow and the S&P 500, have risen by around 9%. Most of all, expectations were high for expanding stimulus measures.

There are many observations that this atmosphere will continue to some extent even when the Biden government begins. According to market research firm CFRA, the S&P 500 has averaged 3.5% increase over 100 days since 1952 when the Democratic Party took office.

Some objections come out that the aspect will be a little different this time. This is because the stimulus issue has been circulated in the market, and political unrest, such as the impeachment of Trump, still persists. If terrorism occurs before or after the inauguration ceremony, the stock market may shake.

Others are wondering whether the stimulus packages that Biden and the Democrats have been unveiled will be able to smoothly pass through Congress. Although the Democratic Party dominated the Senate and House of Representatives, the Vice President had to exercise a casting boat to gain a breathtaking advantage to reach the majority. Moreover, even within the Democratic Party, there is a negative view of the massive cash distribution.

▶If there are any economic indicators worth noting.

It is worth paying first attention to the number of new unemployment benefits claims coming out on the 21st. It is counted on a weekly basis, but this is because the number of new unemployed people surged to nearly 1 million last week. Last week, the number of claims was 965,000, an increase of 181,000 in a week. The increase was the largest since March last year, and the market forecast (800,000 cases) also exceeded 170,000 cases.

Although the vaccine is being distributed, it is still difficult to feel the effect, and the economic containment measures are the effect of strengthening.

On the same day, the number of housing starts and permits is also shown. The dominant observation is that the US housing market will continue to boom.

On the 22nd, financial information provider IHS Markit’s January manufacturing and service purchasing managers index (PMI) is released. PMI judges economic expansion and contraction based on 50, which was 57.1 and 54.8 respectively in December last year. Economic expansion continued, but both indices fell from the previous month.

▶If there is a company that is worthy of attention among the companies that announce their results.

This week, a total of 159 companies listed on the New York Stock Exchange will disclose their results for the fourth quarter of last year.

There is no announcement company because it is closed on Monday 18th because it is a Martin Luther King holiday, but Netflix, the world’s number one video service (OTT) company, releases a report card on the 19th. Earnings per share (EPS) is estimated to have reached $1.38, which is key to how far it deviates from these market expectations.

The company posted an EPS of $1.74 in the third quarter of last year. The stock price plummeted, well below the market forecast ($2.14) at the time.

On the same day, Goldman Sachs, Bank of America (BofA), and petroleum development company Halle Burton also reported their fourth quarter results. On the 20th, Morgan Stanley, United Airlines, Procter & Gamble (P&G), etc., on the 21st, Intel, IBM, and American Airline, respectively, will disclose their performance.

However, last week, even though bank stocks such as JP Morgan recorded an’earning surprise’ that exceeded market expectations, the stock price fell.

▶Is there a person who should pay attention?

We need to keep an eye on US Treasury-nominee Janet Yellen. Former Fed Chairman Yellen’s personnel hearing is scheduled for the 19th. Yellen, a professor at the University of California at Berkeley (UC Berkeley) Haas School of Business, was considered a market-friendly’pigeon’ (preferring to ease currency) when leading the Fed after Ben Bernanke.

It is predominantly observed that Yellen will focus on an aggressive economic recovery policy after taking office. His Fed successor, Jerome Powell, is known for his so-called code connection.

If Yellen makes a dove-like view at a hearing, it could send a positive signal to the stock market. According to the Wall Street Journal, if Yellen is asked about foreign exchange policy at the hearing, he will make it clear that he is “not pursuing a weak dollar.” Exchange rate fluctuations reflect economic and market conditions, and the government should not intentionally intervene to improve the trade balance.

This can be seen as a somewhat different view from the former Trump administration. However, it is very likely that this consistent perception will be applied to other countries as well. For reference, 10 countries, including Korea, China, Japan, and Germany, are’observed countries related to exchange rate manipulation’ designated by the US government.

Key Fed figures, including Powell, have no schedule to speak this week. As the first Federal Open Market Committee (FOMC) is ahead of this year on the 26th and 27th next week, there will be no market message. Of course, the observation that this month’s FOMC will not provide guidance on changes in interest rate policy is dominant.

However, other major central banks such as the European Central Bank (BOE) and the Bank of Japan (BOJ) are scheduled for a monetary policy meeting this week. It is unlikely to have a major impact on the New York stock market.

▶ Are there any concerns about the stock market bubble on Wall Street?

It is true that many of these concerns have emerged since the global stock market was so hot even into the new year.

CNBC reported that US E-Trade Securities recently surveyed investors with more than $1 million in equity assets, and 91% said that “the stock bubble is already in the air or is coming soon.” Only 9% said they were far from bubbles. This is a survey of 188 people who have online securities accounts from the 1st to the 7th of this month.

What’s important is how to deal with it, many have said they will not monetize their assets despite the stock bubble. This is because the stock price is expected to rise more than it is now. It is based on the fact that the speed of vaccine distribution will be accelerated, and Biden’s massive stimulus will become visible. A number of investors said “we will put more weight on undervalued stocks.”

“There is a growing awareness on Wall Street that the stock market could be better than it is,” said Mike Rowengart, Chief Investment Officer of E-Trade.

New York = Correspondent Jae-gil Cho [email protected]