CNN Business/Anneken Tappe
Life may get back to normal this year. But the economy probably won’t
It’s tempting to think now that 2020 is over, the economy will soon snap back to normal. But that’s still far off: Americans aren’t spending as much as they used to. Millions remain unemployed. For an economy that runs on consumer spending, that’s a huge issue.
The recovery — and the return to public life — hinges on the coronavirus vaccine rollout. It could take much of 2021 for most Americans to get inoculated, however, and that means life won’t change for many households any time soon as people who can continue to work from home and some schools remain shuttered.
Those restrictions aimed at slowing the spread weigh heavily on consumer spending, which drives roughly two-thirds of the US economy. The reason is simple: if you mostly stay at home, you spend less money.
For the overall economy, that likely means more sluggishness before the great return to normal that is hoped for after the vaccine has been sufficiently doled out.
The Back-to-Normal index from CNN and Moody’s Analytics has declined in recent weeks and now stands at 74%. It reached its peak at the low-80% level in October before rolling back.
The weakened economic activity will continue through the first quarter of 2021, expects Simon MacAdam, senior global economist at Capital Economics.
Even those who were lucky enough to stay employed through this crisis have mostly ramped up their savings rather than spend money, according to James Pomeroy and Henry Ward, economists at HSBC.
More spending in addition to vaccinations could “unlock a wave of reopening and a resurgence in services demand will be the key driver of the global economy in 2021,” they said in a note to clients.
House impeaches President Trump a second time in historic vote
Donald Trump became the first president in U.S. history to be impeached twice after the House of Representatives approved an impeachment charge of inciting an insurrection following the riotous invasion of the Capitol last week.
The resolution, passed just days before President-elect Joe Biden is to be inaugurated on Jan. 20, accused the president of making “statements that, in context, encouraged — and foreseeably resulted in — lawless action at the Capitol,” in the weeks following the election and during a speech outside the White House in the hours before the attack.
Unlike the last vote 13 months ago, when no Republicans voted to impeach the president, 10 backed the effort this time around, including Rep. Liz Cheney of Wyoming, the No. 3 House Republican.
“The President of the United States summoned this mob, assembled the mob, and lit the flame of this attack,” Cheney said in a statement Tuesday evening. “Everything that followed was his doing. None of this would have happened without the President.”
Republican Reps. Adam Kinzinger of Illinois, Jaime Herrera Beutler and Dan Newhouse of Washington, Fred Upton and Peter Meijer of Michigan, John Katko of New York, Anthony Gonzalez of Ohio, Tom Rice of South Carolina and David Valadao of California also voted to impeach, along with all 222 Democrats in the House.
Goldman Sachs’ chief economist warns a pullback for stocks could be coming soon
Goldman Sachs Chief Economist Jan Hatzius said that U.S. stocks and bond markets could possibly “take more of a breather” in the near term, after hitting record highs last week.
U.S. stock markets have had a bumper start to 2021, despite ongoing concerns about the coronavirus pandemic.
On Friday, markets closed at record highs. Since the trough in late March, the S&P 500 and Dow Jones Industrial Average have both added nearly 70% and the Nasdaq has soared over 80%.
Speaking to CNBC at the Goldman Sachs Strategy Conference on Monday, Hatzius shared his outlook for U.S. stocks looking ahead, and explained why market valuations might stop moving “relentlessly higher.”
A pause could come as result of a renewed focus on the Federal Reserve potentially tapering its stimulus program, and the back-up in long-term interest rates that’s currently underway, he told CNBC’s Julianna Tatelbaum.
The 10-year U.S. Treasury yield broke the 1% mark last week, following a Democratic sweep in the Georgia Senate runoff elections and Congress confirming Joe Biden’s victory in the presidential election. The benchmark yield hit 1.18% on Tuesday.
Treasury yields act as a benchmark for all global bonds, meaning companies will see the interest rate on their debts rise. This means it could cost companies more to pay back debt, putting more strain on firms’ finances and therefore hurting their share prices.
Meanwhile, any tapering of the Fed’s quantitative easing program would mean there is less money being pumped into the economy, which could also hurt the stock market as it did in 2013.
‘It should be hard for gold to do anything but appreciate’ – Bloomberg Intelligence
In a matchup of gold versus the broader equity market, Bloomberg Intelligence’s Mike McGlone favors the yellow metal in a research note published this week.
Gold’s recent drawdown is one reason. The end of 2020 was tough on the yellow metal. In November gold suffered its deepest single-day decline in the last seven years. As of 4:20 PM EST gold futures basis, the most active February 2021 Comex contract is up $0.50 (+0.03%) and fixed at $1844.70. The March contract of silver futures is currently fixed at $25.285, after factoring in today’s decline of $0.15 (-0.59%).
McGlone writes that the S&P 500 appears to be extended compared to gold, which has reverted to near its mean.
“With the CBOE S&P 500 Volatility Index at about 23% and above the same measure of gold around 19%, the indication from the marketplace is the S&P 500 is at greater risk of a drawdown. The bottom line is the stock market is more susceptible to some form of catalyst that may spark a mean reversion, as seen with gold in 2H. At almost 20% above its 52-week moving average to Jan. 12, the S&P 500 is the most extended since 2010,” writes McGlone.
He notes that the technical underpinnings are still there, writing that the U.S. debt-to-GDP is at a 130% threshold, a post-war high. Additionally, G4 central-bank balance sheets as a percentage of GDP have reached an all-time apex of about 54%.
“Unless an unlikely scenario unfolds in which these measures sustain declines, it should be hard for gold to do anything but appreciate, particularly when the metal is in close proximity to its upward-sloping 12-month moving average.”
McGlone also notes that the U.S. money supply increased by about 25%, but gold has not yet followed. There is also an “…investment landscape increasingly dominated by how low — or negative — central banks.”
“Resistance at about $2,000 an ounce in 2020 is set to transition to support in 2021.”