The U.S. economy continues to expand at a healthy pace despite President Joe Biden’s initial flurry of executive orders attempting to slow or even eliminate growth.
Biden’s kamikaze approach to economics will weaken real growth. However, it is unlikely to stop the upward drift in stock prices. So long as the U.S. Federal Reserve (Fed) continues to flood of economy with liquidity, monetary policy should be able to overcome barriers to growth for a while. Eventually, as the Fed’s control weakens, the economy and stock values will suffer.
The Fed’s ongoing pledge to keep interest rates near current levels continues to provide a tailwind for stocks. The ideal move for stocks would be for a flat to slight downward move that would allow the economy to catch up to current values.
The Week That Was
Today’s report on wages and salaries and consumer spending in December shows the economy remained strong at year’s end. Although the overall economy is still slightly below its prior peak, personal income, real disposable income, and wages and salaries in December were all slightly above their prior peaks.
Initial unemployment claims have been essentially unchanged since October, at slightly below 900,000. The number of people receiving unemployment benefits continued to edge down to less than five million.
On the Way
Although the Fed says the pace of recovery in the economy has “moderated in recent months,” Markit business surveys show the opposite.
January surveys for both manufacturing and service companies moved from the mid-50s (healthy growth) to the upper 50s (stronger growth), As a result, the ISM surveys this coming week should also show a strong start for the new year.
Despite signs of strength seen in the business surveys, Friday’s employment report is likely to reflect only modest gains in employment. Businesses appear to be able to continue to grow the economy without substantially increasing the number of jobs.
The number of COVID cases appears to be declining rapidly. Deaths tend to follow, with a lag of about four weeks. This suggests that we are on the verge a steep reduction in daily deaths from COVID-19.
Yesterday, Dr. Peter A. McCullough provided a detailed presentation of the treatments for COVID-10 and the studies supporting their effectiveness. It’s highly informative and well worth watching.
After an exhausting upward run, stocks show signs of leveling off. All five major indexes fell by ½ percent to 1¾ percent this past week. The decline took the S&P500 down from 16 percent overvalued to 13 percent.
Although a correction was overdue, there are reasons to justify a move down. Following his move to cancel the Keystone pipeline, Biden issued an order halting all energy production on federal land. The Wall Street Journal reports federal land accounts for 22 percent of U.S. oil, 12 percent of natural gas, and 40 percent of coal production. If Biden’s order leads to a 20 percent hit to U.S. mining, I estimate a loss of 66,000 mining jobs and $70 billion in annualized economic output. This is on top of the 11,000 jobs TC Energy claims will be lost from Keystone.
Climate Czar John Kerry admits cutting fossil fuels to zero won’t do a thing to help the climate. He says foreign pollution will offset any benefit from our action. Czar Kerry still says it makes sense somehow. Conscious people might question it.
Economic Fundamentals: positive
Stock Valuation: S&P500 over-valued 13 percent
Monetary Policy: highly expansive