More than a third of Americans have received at least one dose of a COVID vaccine, and more than a fifth are fully vaccinated.
If you’re wondering what that means for Fed policy, Jim Bullard offered some clues Monday. Or at least that was the spin.
“When you start to get to 75% vaccinated, 80% vaccinated and CDC starts to give more hopeful messages that we are bringing this under better control, then I think the whole economy will gain confidence,” he told Bloomberg. Bullard described the pandemic as a “tunnel” and said that once we get to the end of that tunnel, “it will be time to start assessing where we want to go next.”
Those are just nebulous soundbites, of course. If you’re the media, you do what you can, which in Bloomberg’s case meant running this headline: “Fed’s Bullard Says 75% Vaccinations Would Allow for Taper Debate.”
That’s kind of accurate, but it’s meaningless. Once three-quarters of Americans are fully vaccinated, one imagines the country will have achieved something like herd immunity and that new cases will have dropped markedly from current levels (around 60,000 per day, figure above). At that point, the services sector will have the all-clear, economic activity will accelerate and that will count as “substantial further progress,” allowing the Fed to start muttering internally about the possibility of buying less every month. Once the muttering starts, they’ll begin the careful messaging to markets, complete with the usual missteps and mini-tantrums.
None of that is new, nor is it news (with an “s” on the end). But I suppose it’s worth mentioning. I’d actually venture that this could end up being problematic, because now, market participants may start to benchmark their taper expectations based around progress towards that 75% figure — as absurd as that most assuredly is.
In any event, Bullard also said that notwithstanding any percentages on vaccinations, “it’s too early to talk about changing monetary policy.”
That’s what counted as a “notable” story Monday, which was essentially a day spent nervously in the waiting room ahead of an examination. The rest of the week is chock-full of data, earnings and other potentially market-moving news flow. Inflation is obviously front and center and the latest New York Fed survey betrayed some worrisome trends (linked article below).
Read more: The Word Is ‘Inflation.’ With A ‘K’
Equities were under pressure and came off record highs but, again, things could look different by Friday afternoon. “[T]his promises to be a fascinating week,” Bloomberg’s Cameron Crise wrote, adding that “it could well end up being the case that everything that’s come before this month has simply been a paper-shuffling preamble.”
Somehow I doubt this week will be eventful enough to negate any and all signals from the first quarter, but you get the point: There’s a lot on the docket. And, in turn, a lot riding on how it all comes out.
As you look ahead to earnings, note that guidance will take precedence and even more so than usual, consistent with pandemic dynamics. “Backward-looking performance metrics have been ignored by most investors for the past year,” Goldman’s David Kostin said, reminding folks that last quarter was among the best on record in terms of companies beating by at least one standard deviation. And yet, as Kostin also pointed out, “the median stock beating estimates actually lagged the index by 85bps on the subsequent day… the weakest post-report performance on record.”
What’s the takeaway? Well, simple: If guidance is always important, it’s even more so these days. What happened last quarter is largely irrelevant. “Put simply, the trajectory of the economic recovery will continue to make backward-looking metrics less relevant for the forward-looking market,” Kostin remarked.
In a new piece, SocGen’s Andrew Lapthorne noted that, on the surface at least, stocks’ rise seems consistent with the trajectory of “consensus EPS forecasts so far this year [with] the latest flash estimate for 2021 EPS [up] by 7.1% YTD.”
Not surprisingly, the lion’s share of the upgrades are concentrated in cyclicals. “While the latest aggregate earnings momentum may appear to be supportive for equity markets overall, the average stock in the MSCI World index is up 20% from end-2019, yet 12-month consensus forward EPS is up only 3.7% on average over the same period,” Lapthorne went on to caution, before suggesting that the MSCI World’s valuation distribution “is as expensive, if not more so” than the bubble that inflated in the late 1990s.
As for rates, the market digested three- and 10-year supply with relative alacrity. There were no real fireworks around Monday’s auctions, leaving Treasurys to look ahead to the long-bond sale, CPI and, later, retail sales and regional Fed surveys.
“Bullard’s (non-voter) comments caught our attention for how [vaccine] rollout may be influencing the mindset on the FOMC,” BMO’s Ian Lyngen and Ben Jeffery wrote, adding that “his views have historically not necessarily aligned with broader Committee, so we’re content to call that vaccination threshold more an observation on the return to normality than anything more concrete.”
The title of their daily wrap: “53% to go, Jim.”
