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This is one of the most disconnected stock markets in history. The lesson we have learned in the past 10 years is if stocks are up and the economy looks weak, trust stocks. That might not be bad advice this time because the economy is set to receive another stimulus, interest rates are at zero, and the vaccines are being distributed. There have now been 6.25 million vaccine doses given out in America and 17.5 million worldwide. The state with the highest percentage of citizens vaccinated is West Virginia at 4.13%. Unfortunately, the COVID-19 data still looks bad and there will be a new record total of deaths for a month in January. The 7 day average of people in the hospital is at a record high of 128,349. The 7 day average of deaths is 2,758 which is also record high. The data has normalized after the holiday. ....
The November retail sales report wasn’t good. It shows the need for additional stimulus. Many will criticize the $600 checks and the 11 weeks of $300 in unemployment insurance, but it will have a significant impact on spending to start the year. Of course, many want more money, but that’s not up to us. We just play the hand we are dealt. The checks probably won’t impact December retail sales, so another weak report is coming since there have been more shutdowns and initial claims have increased (although if they go out early next week that would bump up results in December). It’s notable that stock investors are ignoring the weakness in consumer spending as the S&P retail ETF is up 27% since October 30 ....
The Fed kept rates at zero at its December meeting to no one’s surprise. Furthermore, it will continue buying bonds at a rate of $120 billion per month. As we have mentioned, financial markets and actual people are in dramatically different positions. We have the loosest financial conditions ever and the Nasdaq 100 is up 45.06% year to date. On the other hand, small businesses are struggling to make it and almost 8 million people have entered poverty since June. The fiscal stimulus will be a bridge to get us to the spring when the economy can reopen. It won’t suddenly get these people out of poverty. More can be done to help those who are the worst off. The good news is the vaccine will help those people get back to work. The main problem is it is expensive to be poor. It’s expensive to go without health insurance and pay high interest on credit card loans. Sadly, it’s tough to be healthy when you’re poor which means you will need healthcare more. The Fed did all it ....
The Fed’s plans for low rates and QE will be questioned by the market once the vaccine goes out and the labor market recovers. Even though the unemployment rate has become more normal, there are millions of displaced workers in the COVID-19 economy. When those people get jobs again, the market will immediately look to the Fed to make plans to end its QE program and provide updated guidance on when it will raise rates for the first time. The market determines Fed policy more than some think. The Fed is only allowed to raise rates when the market says it can. The best way the Fed combats this is though forward guidance. It wouldn’t have a chance versus the market if it only set policy though actions. ....