Markets remain optimistic about fiscal stimulus from President Joe Biden’s new administration. The S&P 500 rose 1.39% to a new high yesterday – the best inauguration day rise in 36 years.
It may not take long. Our call of the day is from Citi’s C,
reporting on investment themes for 2021, and the bank said there is “significant potential for financial turbulence” in the markets.
Equity index valuations are at high levels, potential credit cuts are imminent and there is the possibility of inflation surprises this year, said Citi, backing strategists’ forecasts.
Financial valuations are inconsistent with real side measures, such as gross domestic product, “by almost all measures.” This loads the gun for a turbulence trigger.
It could be inflation. The COVID-19 pandemic has set the stage for a volatile inflation rate in 2021. While Citi said there is “little underlying support” for sustained inflation, missing prices due to the effect of lockdowns and the corresponding year-over-year base effects scare markets.
A wave of turbulence could also be caused by slowing down central bank purchases. Projections suggest that both the pace of purchases and net asset purchases will slow this year. Given that net asset purchases are the primary path between monetary policy and the real economy, Citi said a change in these patterns could surprise markets “no matter how hard central banks try to communicate in advance.”
According to the investment bank, any turbulence is likely to hit the equity and credit markets as these asset classes are currently showing greater volatility than recent standards.
So what should investors do? Citi recommends purchasing the following dip.
The investment bank’s Global Bear Market Checklist registers 8/18 red flags after the latest rally, which are the most markers since 2009. The US market has 9.5 red flags while it is lower in Europe, at 5.
That indicates a fair amount of “foam” in markets – the more foamy, the less likely Citi’s model is to buy the dip. But it is still enough.
The buzz
Biden went to work on Wednesday to reverse some of former President Donald Trump’s signature policies. He signed 15 executive orders, including the revocation of the ban on immigration from Muslim countries, the revocation of the license for the Keystone XL pipeline and the start of the process to rejoin the Paris climate agreement.
Attention now turns to ushering in a $ 1.9 trillion plan through Congress to help the pandemic-ravaged economy, including sending $ 1,400 stimulus checks to Americans.
Online store Amazon AMZN,
has offered to support the new government’s pledge to increase distribution of COVID-19 vaccines in the US, saying it could help Biden achieve his goal of reaching 100 million Americans in the next 100 days. vaccinate.
In the economic field, all eyes are on the job reports released today. Initial unemployment claims on Jan. 14 came in at 900,000, less than the 935,000 expected and down from last week’s surprise of 965,000. There were about 5 million persistent jobless claims on January 9.
The starting figures for residential construction in December were 1.7 million, above expectations.
Three Chinese Telecom Giants – China Telecom 728,
China mobile 941,
and China Unicom 762,
– have asked the New York Stock Exchange to reconsider its decision to delete them in line with Trump-era policies.
Consumer product giant Unilever ULVR,
has said that by 2030 it will ensure that all workers in the extended supply chain receive a living wage from their employers. The multinational is behind brands such as Ben & Jerry’s, Hellmann’s, Q-Tips and Dove soap.
The markets
It looks like a positive day after yesterday’s big rally. Stock market futures are slightly higher YM00,
ES00,
NQ00,
set for a soft but floating open with the Dow pointed upwards at about 70 points. Asian markets NIK,
HSI,
SHCOMP,
a broad rally, while the European markets UKX,
DAX,
PX1,
continue their advance. The pan-European Stoxx 600 SXXP,
is up eight out of the past 11 days.
The graph
The days of Trump’s White House are a thing of the past, with the stock market performance he now presided over for the books. Our card of the day from Deutsche Bank DBK,
shows that Trump led the US through the second-best S&P 500 performance since the Great Depression, in annual terms. Bill Clinton, president through the dot-com bubble in the late 1990s, takes the top spot.
Random reads
Hell to pay: Suspected arson shakes a church of Satan community.
A woman who was ruled dead in 2017 is fighting to be declared alive.
Need to Know starts early and updates to the opening bell, however Register here to have it delivered once to your email box. The e-mailed version will ship at approximately 7:30 a.m. East.
Do you want more for the day ahead? Sign up for The Barron’s Daily, a morning investor briefing, including exclusive commentary from Barron’s and MarketWatch writers.