$1.9 trillion to be poured out by Kim Hyun-seok's Wall Street Now Biden... An uneasy tech stock

–

The New York Stock Market continued to be calm. It maintained a slight rise until the middle of the market, waiting for President-elect Joe Biden’s $1.9 trillion in economic stimulus to be announced after the close of the market. However, as the’reflation trade’ (buying beneficiaries in anticipation of an economic recovery and inflation) accelerated later in the market, it ended slightly lower. Large tech stocks, such as Apple’s Amazon, pulled down the index together.

The Dow fell 0.22%, the S&P 500 fell 0.38%, and the Nasdaq fell 0.12%. Apple fell 1.51%, Facebook fell 2.38%, Amazon fell 1.21% and Microsoft fell 1.53%. On the other hand, the small-cap index Russell 2000 rose 2.1%.

[김현석의 월스트리트나우] $1.9 trillion to be poured out by Biden... An uneasy tech stock

–

The strengthening of the’reflation trade’ is due to two factors. First of all, expectations have risen that the economy will revive if an additional $1.9 trillion in stimulus is poured out. This is because Chairman Jerome Powell said on the tapering (reducing monthly bond purchases in terms of quantitative easing) that “it is not yet time to discuss the exit” and “when that time comes, we will deliver it so that the world knows.” . Anyway, though not now, bond yields have risen while taking advantage of the potential for tapering and putting downward pressure on tech stocks. Still, the stock market seems to be paying attention to the interest rate movement.

This trend becomes clear from the stocks that hit all-time highs on this day. Financial stocks such as Goldman Sachs, JP Morgan, and Capital One, as well as value stocks such as Deer, Jones Controls, and Johnson & Johnson have changed their all-time highs.

In particular, a large number of semiconductor stocks were included. Broadcom and equipment owners Applied Materials, KLA, and Lam Research all hit record highs. This is the TSMC effect. The day before, TSMC in Taiwan announced that it would invest up to $28 billion this year, saying that it achieved record-high performance in the fourth quarter (sales increased by 14% and operating profit by 26.5%). This is an increase of at least 47% year-on-year, and Samsung Electronics has never made such a large-scale investment in a year.

–

Unlike the calm stock market, the New York bond market was upbeat. The 10-year U.S. Treasury bond yield, which rose to 1.188% on the 12th, fell to the 1.07% level on the 13th and stabilized.

–

But on the night of the 13th, after CNN reported that “Biden’s fiscal stimulus would reach $2 trillion,” the 10-year interest rate turned upward again and rose to 1.10%. If the Biden administration spends a lot of money, it could speed up the economic recovery and increase the amount of government bonds issued. If a lot of money goes around, inflation can also increase.

On the morning of the 14th, the number of unemployment insurance claims announced at 8:30 has changed the direction of interest rates again. The number of U.S. unemployment insurance claims for the week ended last 9 was 965,000 (seasonal adjustment), an increase of 181,000 from the previous week, the highest since the week of August 22 last year. It exceeded the 800,000 Wall Street expected. A Wall Street official said, “The winter blockade effect has begun to appear in the numbers in earnest. We will see these economic indicators frequently in the future.” As the economic outlook was clouded by gloomy indicators, bond rates went down. (On the other hand, S&P 500 futures were on the rise at the time, thanks to the prospect that worsening economic indicators could increase the size of the stimulus package.)

–

At 12:15 p.m., Chairman Jerome Powell’s speech began. In summary, even if there is inflation, the interest rate would not be raised unless it was rapid, and he would be cautious about tapering, and he would inform him long in advance when the time came. With this remark, bond rates soared again. It was meant to open up the possibility of taper and tolerate some inflation.

–

Chairman Powell’s remarks can be summarized in four ways.

① Interest rate

When the time comes to raise interest rates, it will certainly do, but the timing is not very close.
We will not raise interest rates to prevent falling unemployment, unless we see an imbalance that threatens our mission, such as the serious risk of excessive inflation.

② Tapering

When talking about buying assets, you need to be very careful. Now is not the time to discuss the exit. Another lesson from the global financial crisis is that you need to be cautious without looking for an exit too soon. (When the time comes to reduce the mitigation policy) the whole world will know. We will communicate very clearly with the public long before we consider the start of a gradual reduction in asset purchases.

–

–
③ Inflation

Inflation may be higher this year, but it is not on the path to consistently reaching 2%. If inflation rises in an unexpected way, we have the tools to respond and we will use them. There is no doubt about that.

④ American economy

We were in good shape in February 2020 and I think we can get back to that position much sooner than we feared. All economies, including the US, face many challenges in the long run. However, I would like to say that there is no obvious imbalance threatening the current economic recovery.

Several times during Mr. Powell’s words, he tried to refrain from affecting the asset market. Perhaps the level of the stock price right now feels a burden.

In the US stock market, overheating signals are loud. Following Tesla and Russell 2000,’penny stocks’ for less than a dollar are running. New stocks that went public for IPO are also not in a riot. Following Door Dash, Airbnb, etc., the Posh mark listed on the day rose 142%, and Petco rose 44%.

–

And bitcoin has passed $40,000 again. An analysis suggests that Bitcoin’s regaining strength was influenced by reports that Biden’s fiscal stimulus package exceeded $2 trillion. It means the dollar is pouring out. European Central Bank (ECB) President Christine Lagarde said on the previous day that “virtual currency is not a currency, but is a speculative asset, so global regulation is necessary as it is also used for money laundering.”

Biden’s stimulus plan was announced a while ago. △ Checks for additional stimulus packages of $1400 per person ($600 plus $2000 at the end of December) △ Increased federal unemployment benefits to $400 a week and extended benefits until the end of September △ Increased federal minimum wage to $15 per hour This included an increase, △ extension of eviction and foreclosure probation until the end of September △ $350 billion in support to state and local governments △ $170 billion in support for schools at all levels △ $70 billion in support for corona tests and dissemination.

Biden’s stimulus plan doesn’t mean it will pass right away.

In the case of the House of Representatives, the Democratic Party has a majority of 222 (435 in total). However, with three people already standing, if only one or two defectors are not allowed to appear.

The Senate is unclear whether mid-century Senator Joe Manchin will still favor the stimulus. Fortunately, however, the Republican Party has reinforcements. Two Republican lawmakers, including Rubio, said yes to the payment of a $2,000 stimulus check per person. It is not known whether they will approve of other agendas.

In the Senate, it could be more than a simple majority. But it seems difficult to get 60 votes to neutralize the filibuster. In this case, it appears to be going to a’budget reconciliation’ that can be passed by a simple majority, which takes considerable time. In addition, this procedure can only be applied to agenda related to revenue and expenditure.

Wall Street estimates that additional stimulus measures will be passed in mid- to late March, when the $900 billion stimulus package passed at the end of December falls. Until then, discussions between the two parties will likely continue. For the time being, this debate could be the topic of financial markets affecting not only stock prices and interest rates, but also dollar value and bitcoin.