October 20, 2021
Stocks have gone on a five-day run, to revisit record highs. Yields are on the move, trading as high as 1.67% today. And commodities continue to climb.
Is it the strong start to third quarter earnings season that's driving this "risk on" surge in markets?
Doubtful. We knew the bank earnings would be huge. The interventionist policies, combined with their war chest of loan loss reserves at the banks, have made them profit printing machines.
We are just now getting to hear from companies that are talking about "costs." So this buzz surrounding Q3 earnings should begin to wane.
Is the recent surge in markets due to the likelihood that a deal on "The Big Spend" is in the offing? Maybe quite the opposite.
As the days pass, it's becoming more believable that the two Democrat Senators opposing the $3.5 trillion plan are genuinely digging in. The headline number ($3.5 trillion) to "Build Back Better" has already been cut down. And some key pieces are being carved up. The Wall Street Journal reported this afternoon that Sinema is opposing tax increases.
At this point, with the hot inflation picture forcing the Fed to, already, telegraph a faster path to its first rate hike, the potential for this "big spend" to become less transformational, or even completely obliterated in the negotiation process, would be a positive for the economic outlook, and for market and price stability (i.e. get out of the way and let the $5 trillion already injected into the economy, combine with a returning workforce to drive growth). Perhaps some are beginning to price that scenario into markets.
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