19 Jan Capital 19 Catch-Up

Stocks fall for the week as Biden announces $1.9trillion stimulus

A lot of the good news that lies ahead may already be accounted for in the market as Wall Street logs its first weekly loss of 2021. 

The S&P 500 and Nasdaq Composite each fell more than 1% for the week. The Dow Jones Industrial Average lost 0.9% over that time period. It was the first weekly decline for the Dow in five weeks. The Nasdaq also snapped a four-week winning streak. The Australian market also fell during the week, losing 0.5%

Those weekly losses came as traders awaited, and ultimately received, the details of President-elect Joe Biden’s $1.9 trillion Covid stimulus proposal. The plan would increase the additional federal unemployment benefits to $400 per week and extend them through September and provide direct payments of $1,400 to many Americans. It also calls for $350 billion in aid to state and local governments, $70 billion for Covid testing and vaccination programs, and raising the federal minimum wage to $15 per hour.

Overall this level of spending is equivalent to giving every man, woman and child in the United States around $5400. It is this spending that is weakening the US Dollar and the reason the Aussie is trading up over 77 cents. 

And it isn’t just the Aussie Dollar that is strong. Australian house price data showed house prices grew 0.9% in December, with increases across every capital city for the second straight month. All indications are that property is set for a strong year and is further reason the RBA will be reluctant to reduce rates given potential asset price inflation concerns. 

It is just those asset price inflation concerns that have us so excited here at Capital 19. We are predicting a very strong year of stock market returns as countries around the world continue with their easy money policy. 

Companies are able to borrow at just about zero and use those funds to invest in expanding their sales. 

We have just started Q4 earings season and already we can see this happening. The first batch of bank earnings came out on Friday with JP Morgan (JPM), Wells Fargo (WFC) and Citigroup (C) all beating earnings expectations. 

We will get more earnings announcements this week, as the season gets into full swing. We expect many more beats before the season is done. 

The market is based on three pillars of growth. Low interest rates, stimulus payments and growing earnings. 

Usually just one of these is enough to drive prices higher. Getting all 3 together at the same time is investing nirvana.

Bottom Line: Stay Long