Suddenly, the pro-cyclical rotation catalyzed by the prospect of more fiscal stimulus (think: A unified Democratic government and Janet Yellen at Treasury) and the rollout of multiple effective coronavirus vaccines appears to be losing steam.
The Nasdaq outperformed handily last week, and headlines Monday were rife with references to the return of tech dominance as the titans prepare to report quarterly results.
If Netflix’s numbers are any indication, the stay-at-home trade may yet reclaim the narrative. You might recall that Netflix logged 8.5 million net adds in Q4, well above guidance and consensus, capping a truly outstanding 2020.
Now, with Apple and all the rest on deck, “it’s a gut-check for investors who’ve been fading the era of the stock giants on the conviction that firms tethered to the US economy are set to outperform,” as Bloomberg put it Monday.
In addition to the prospect of earnings beats from the tech behemoths, concerns around vaccine-resistant virus strains and the “here and now” reality of economic pain from containment protocols instituted during the winter COVID wave, have together weighed on reflation optimism in recent days.
Not coincidentally, the much-ballyhooed rise in bond yields stalled in the US. A bull flattening impulse is creeping back into the curve to the detriment of cyclical expressions in equities.
Commenting on the suddenly waning reflation euphoria, Nomura’s Charlie McElligott cited “over-position[ing] from tactical Bond shorts [and] Cyclical Value longs, creating a pretty strong profit-taking incentive.” He also noted “discomfort around the ‘realities’ of slow vaccine implementation and the government’s stimulus size negotiation.”
On Monday, Chuck Schumer said new COVID relief may not pass until mid-March. The possibility of a multi-month delay in getting Joe Biden’s stimulus plan through Congress dented market sentiment.
If you’re not righteously indignant with the US legislative process at this point, you should be. How many times have you heard, from Democrats, over the past several weeks that there’s “not a moment to waste,” or some similar exhortation to action? How many times have centrist Democrats insisted that if only they had the Senate, they’d alleviate the suffering of millions upon millions of jobless Americans and families experiencing food scarcity?
Too many times to count. That’s how many.
And yet, here we are with Democrats in control of the Senate (albeit by the slimmest of slim margins) and Schumer is talking about March. “We’ll try to get that passed in the next month, month and a half,” he remarked, on a call.
I implore you, just read the following short excerpt from Bloomberg’s coverage:
The Schumer timeline reflects the length it could take to craft a bill using the expedited budget “reconciliation” process needed to bypass a filibuster by minority Republicans. The House and Senate would need to first draft a budget resolution for fiscal 2021. That process in the Senate involves a floor “vote-a-rama” where hundreds of amendments can be offered to the budget for simple majority votes. Those can take days to resolve.
Once a concurrent budget resolution with reconciliation instructions is adopted, committees would then need to draft legislation adhering to the outline. That legislation would then need to pass both the House and the Senate, be scored by the Congressional Budget Office and survive any rules challenges in the Senate. The second process would likely take weeks.
This isn’t “new,” of course. But it’s still a joke. And not a very funny one, either. America’s government isn’t just dysfunctional. It’s paralyzed.
While lawmakers will point out that key measures under the recently passed relief package don’t expire until March anyway, the idea that this will once again go down to the wire, accompanied invariably by all manner of brinksmanship, horse-trading, logrolling, superfluous deficit posturing, and generalized screwing around, is an insult to voters — Republican, Democrat, and otherwise.
Consider this passage from Rabobank’s Michael Every, writing last week:
Of course, the economic data are going to push and pull on the “Reflation Trade” narrative as places open and close and base-effects play havoc; and, yes, genuine supply and demand in some key commodities may remain inflationary. But keep asking yourself: have the working class started to get a better deal yet or not (and one that will allow them to literally swallow higher commodity prices rather than them being a form of tax?) When they do, let’s talk reflation. Until then, let’s not.
I’ve long said that while it was obviously paramount to remove the cancer at 1600 Penn. and wrench control of the Senate away from Mitch McConnell, a Biden administration, even if accompanied by a narrow Democratic majority in the Senate, would ultimately mean almost nothing to everyday people, at least in the aggregate. It will be the same paralysis and the same brinksmanship and the same suffering and, generally speaking, the same economy.
Little wonder, then, if tech and other secular growth names reassert themselves in recognition of the likelihood that even once the virus is under control, transformational change with the potential to bring about brisk growth and sweeping improvements in the economic lives of the masses isn’t in the cards.
The final insult is always just that big tech gets to claim that if it weren’t for their products and services, the everyday lives of lower- and middle class citizens in advanced economies would be even less bearable.