‘Full Bull Run’

‘Full Bull Run’

US equity futures were higher ahead of Friday’s all-important nonfarm payrolls report, which, as expected, was a blockbuster.

Most markets were closed for Good Friday, but bonds would (briefly) have their say.

After an “interesting” and, at times, fraught, first quarter, stocks kicked off Q2 with a bang a day after Joe Biden unveiled the first of two long-term economic revival plans aimed at updating not just the country’s rickety infrastructure, but American capitalism too.

“The US equity market opened the second quarter with a sonic boom ushering in a great ‘Good Friday,'” AxiCorp’s Stephen Innes said. “As we enter Q2, optimism abounds… with the macro focus squarely on the infrastructure plan” and the prospect that the growth impulse from more fiscal measures will “merge with optimism around the reopening theme,” he added.

According to Bloomberg’s data, investors poured $86 billion into equity ETFs during March (figure below). That comes hot on the heels of a record February and brings the total since the election to more than $320 billion.

The S&P is now up some 80% since the pandemic lows. That, Bloomberg noted late Thursday, “already surpasses the total gain achieved in three of the 13 previous full bull runs.”

On the infrastructure proposal, Mitch McConnell vowed to fight it, which isn’t surprising. No Republicans are likely to support it, he said. It’s hard to escape the notion that if there is a god inside the Beltway, his or her name is “Spite.”

“I’m going to fight them every step of the way, because I think this is the wrong prescription for America,” McConnell said. Discussions around the size of the package (and funding) notwithstanding, the idea that there’s much wrong with the “prescription” is laughable. If you read the bullet points in Biden’s plan, you’d have an (extremely) difficult time pointing to something that’s objectively bad.

Jen Psaki challenged McConnell to come up with his own ideas for funding infrastructure and present them to the White House. “If you don’t want to raise the corporate tax rate, if you don’t want to put in place a global minimum tax, what are the alternatives? We’re happy to hear those proposals,” she said. Psaki also reminded Republicans that even after Biden’s proposed corporate tax hike, the rate would “still [be] lower than it’s been over the last 70 years and across decades.”

As I often remind folks, McConnell isn’t in the problem solving business. He’s in the politics business. And he’s Machiavellian in the extreme. That’s not necessarily an attempt to be derisive, and it’s definitely not a partisan assessment. It just is what it is. Mitch is Mitch.

Biden said this week he’s happy to “have a good-faith negotiation with any Republican who wants to help get [infrastructure] done.” But, he said, “we have to get it done.”

McConnell doesn’t have good-faith negotiations. That’s another “it is what it is” assessment. Good-faith negotiation is anathema to who he is. It’s much easier to analyze Mitch if you just eschew normative statements. Forget “right” and “wrong” and strip out your own political leanings, because I can assure you, they don’t matter to McConnell. Recall how quickly he turned on Donald Trump in January, chastising the former president from the Senate floor, only to go on Fox News a few weeks later and declare that he’d support a Trump run in 2024.

What’s important, if you’re a market participant and you think the trajectory of fiscal policy matters, is that you don’t delude yourself. This bill is going to pass in one form or another. Likely sometime over the summer. You should plan accordingly.

“If Democrats use the reconciliation process to pass President Biden’s fiscal proposals, they will need to decide whether to pass a single reconciliation bill that combines [this week’s] infrastructure proposal with the other proposal Biden looks likely to outline in April, or to leave the two proposals separate and pass infrastructure first, with a separate reconciliation bill following later this year,” Goldman’s Alec Phillips said. “Either is possible, but we believe it is more likely that Democratic leaders will decide to pass a single reconciliation bill to avoid forcing their members to take two separate votes to raise taxes.”

The bank also said the plan “would average around $275 billion (1.25% of GDP) over the next eight years [suggesting] it could boost federal spending by a little over $100 billion (0.5% of GDP) next year, and perhaps $150-200 billion (0.7%) in 2023.” For what it’s worth, Goldman thinks Congress can hike the corporate tax rate to 24-25% with little problem, “but might start to run into resistance among centrist Democrats between 26% and 28%.”

So far, the market appears to like the plan. Stocks are riding high and bonds actually rallied Thursday despite the best ISM print in almost four decades. Treasurys brought a bull flattening impulse into the jobs report, which was odd. That could easily be unwound and you can’t read anything into the price action on the first day of a new quarter anyway.

As for stocks, it’s worth noting that if you do believe this is a “new” bull market (i.e., not merely the extension of the post-financial crisis run), history suggests it’s unlikely to end soon.

“In 13 previous bull cycles in the past century or so, none ended at this point of the cycle,” Bloomberg went on to say Thursday, in the same piece mentioned above.

5 thoughts on “‘Full Bull Run’

    1. Thanks for that post. Clearly there is ideology at play and as you indicate America is collectively drinking the punch, even if Conservatives lead the charge. Ideology aside (fallible as it always is), it is pretty clear the great enabler of that tax decline is the rise in bond prices and appetite for usd debt globally. Abandonment of the gold standard didn’t hurt either. An interesting question is where the money goes? It obviously hasn’t been reinvested in America. How ironic then, that the jingoistic America Firsters, with their unblinking acceptance of neoliberalism, have so singlehandedly led to the rise of China and bankrupting of America.

      1. “Clearly there is ideology at play” Clearly there isn’t. Mitch is a lot of things, ideological isn’t one of them. He’d gladly perform abortions himself and officiate at gay weddings if it secured him the senate majority leadership a bit longer. But as it stands, he just finished pushing his exit plan through the KY legislature. He won’t leave before 2023 though because he wants to hold the record for longest majority/minority leader. He practically handed the democrats the senate by refusing to pass the $2k checks. He’d much rather let the democrats run up the deficit (which he knows is BS but can’t get his caucus to figure out) so that the billion things that need to get funded can get rammed through. If he (or any other republican senator) actually objected to any of the spending they would throw the temper tantrum he keeps alluding to if they touch the filibuster. He also quite specifically handed the democrats a 2nd bite at reconciliation by just passing CFR’s instead of an actual budget last year. He, and the Fox News outrage machine are waiting for the Democrats to overstep on some stupid culture issue and are hoping to ride it and what is guaranteed to be by far the worst gerrymandering anyone can possibly imagine to a solid win in mid-terms. E.G. If democrats get more than 3 of Georgia’s 14 congressional districts the GOP did them a favor. They have 6 now.

  1. Hyberole aside, it appears as if the GOP and DEMs have different connotations of what the term “infrastructure” actually means. To some it means bridges, tunnels, and roads, but clearly to others it means a lot more things which seems to redefine the term “pork.”

    1. The GOP’s position is archaic, deliberately obtuse and, on some points, laughably ridiculous. Fortunately, it doesn’t matter. Elections have consequences. And they lost this one. All the way around. If Republicans don’t start living in modernity, the party will disappear.

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