Markets Quiet but Yield Pressures Weigh on Stimulus Prospect

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Nasdaq relative weakness
FX flat
Nikkei 0.85% Dax 0.50%
UST 10Y 1.11
Oil $52
Gold $1854/oz.
BTCUSD $38000/oz.

Asia and the EU

USD Weekly Jobless Claims 8:30

A quiet and uneventful night in the markets so far with Nasdaq futures markedly lower than the other indices while FX remained range bound with little news flow to move prices.

The most pronounced divergence today is in equities with Nasdaq lower by 30 basis points while both S&P and smaller caps Russell indices were up. The trade may reflect the realignment from “High Tech” to “Main Street” as President Biden takes the reins of power.

The Biden Presidency is clearly focused on the revival of small and medium sized business as it deals with the economic fallout from COVID induced shutdowns. Biden’s new stimulus proposal is tilted towards providing funds for that sector.

Meanwhile, the Nasdaq stocks may be hurt two ways by the Biden Presidency. The vast new spending proposals are already starting to drive yields higher and while they remain historically low, markets are always pricing in relative rather than absolute moves. A spike in benchmark 10 year bonds to 1.5% would only represent a 50 basis increase, but a full 50% jump. More importantly the higher yields would naturally depress sky high Nasdaq P/E ratios which are dependent not only on the companies growth prospects but but on ultra-low yields.

As to growth, Nasdaq companies have enjoyed near monopolistic like profits in the new “virtual world” environment of COVID living, but with Biden Administration at the helm they are sure to see more regulatory scrutiny which at very least could create friction in their business model and at the very worst could impose significant penalties and perhaps divestiture of key assets.

All of these fresh concerns are beginning to be expressed in Nasdaq price with the index struggling to breach the 13,000 level even as the work from home phenomenon that has greatly helped so many names in the index continues to be the trend for the foreseeable future.

With no major data releases on the docket today the markets may continue to tread water for the time being as investors wait to hear from the soon to be President Biden.

Boris Schlossberg
Managing Director

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