December 7, 2020 BARRON’S 9
UP & DOWN WALL STREET
A Democratic win in the Georgia runoffs could
pose a near-term headwind for equities, given
their 9.1% advancesince Election Day.
BadNewsonJobs
Means Good News
For Relief—and Stocks
R
emember the old bad-
news-is-good-news
market leitmotif?
Well, it’s back.
It used to be that
weak economic re-
ports would spur
rallies in stocks because the Federal
Reserve was presumed to lower in-
terest rates in response, instead of
concentrating single-mindedly on
the perils of inflation.
Now, with the Fed pretty much all
in with a supereasy monetary policy,
the focus is on fiscal policy. And the
latest employment data should give
further impetus to negotiations
among Congressional leadership on
fiscal relief for Americans facing a
bleak winter owing to the worsening
coronavirus pandemic.
While theNovember jobsreport
released on Friday was disappoint-
ing, even worse lies ahead, as the
data were collected prior to the most
recent surge in Covid-19 cases that is
both filling hospital intensive-care
units across the country and curtail-
ing workers’ ability and willingness
to work. Nonfarm payrolls rose by
245,000, a little better than half the
forecast increase and less than half
the average of the latest three
months.
The seemingly good news was a
drop in the headline unemployment
rate, to 6.7% from 6.9%, but that was
entirely because 400,000 people left
the labor force. Some of the dropouts
may have been due to the lack of job
prospects. But the beige book sum-
mary of economic conditions pre-
pared for the Dec. 15-16 Federal Open
Market Committee meeting reported
that some employers had trouble
hiring because of a reluctance of peo-
ple to get out to work, owing to fam-
ily-care demands or fear of catching
the virus.
But the bad news on jobs was
treated as good news for stocks, as
the Dow Jones Industrial Average, the
S&P 500 index, and the Nasdaq Com-
posite all notched fresh records, in
part because of what it could portend
in terms of fiscal relief.
Strategas economists Don Riss-
miller and Erica Halie Comp neatly
summed up the situation in a client
note titled, “Earth to D.C.: Jobs Miss,
Now What?”: “Forward-looking risk
assets have been rallying on what
looks like hope for stimulus plus a
vaccine in 2021. The U.S. has lock-
downs now, but stimulus talks are
moving again, and this report could/
should speed that process along. If not
now, when?”
That message appears to be getting
through. A bipartisan group of sena-
tors on Capitol Hill this past week
put forth a $908 billion relief pro-
posal, much closer to the Republi-
cans’ recent $650 billion proposal
than the House Democrats’ last $2.
trillion bill.
A major sticking point remains aid
to state and local governments, op-
posed by the GOP, even though that’s
a major point of stress. Local govern-
ment education jobs fell another
21,000 in November,bringing the
loss in the sector to 688,000 since
February, or some 8.6%, writes
Philippa Dunne of TLR on the
Economy, in a research note.
Even before the jobs report, House
Speaker Nancy Pelosi (D., Calif.) was
talking again with Treasury Secre-
tary Steven Mnuchin and Senate Ma-
jority Leader Mitch McConnell (R.,
Ky.), after a postelection hiatus.
Pelosi said that she and McConnell
agreed to try to link a relief bill to a
measure to fund the government after
Dec. 11, The Wall Street Journal
reported.
Cornerstone Macro Washington
watchers Andy Laperriere and Don
Schneider think that a $900 billion
package is likely by year end, accord-
ing to a client note sent out on Friday
after the weak jobs numbers.
Bulls clearly are looking beyond
the mounting toll of coronavirus
cases, hospitalizations, and deaths to
better days in 2021. Leaving aside the
present reality of payrolls staying
9.7 million lower than before the pan-
demic, the question remains whether
record stock indexes already discount
the brighter tomorrow that so many
fervently anticipated.
To be sure, fiscal relief is not a
done deal; in fact, there is no deal at
this writing. If Congress fails to come
through, however, the pressure on
the Fed to provide further stimulus
will increase, write Jefferies econo-
mists Aneta Markowska and Thomas
Simons in a client note. The bench-
mark 10-year Treasury yield ended
the week at 0.967%, a four-week
high, also reflecting optimism about
economic recovery.
The FOMC could provide guid-
ance about the path of future asset
purchases, but expectations that the
central bank could taper its buying in
the second half of next year are pre-
mature, they add.
One more thing for the bulls to
ponder is the key Georgia Senate
runoff elections in January. Raymond
James’ chief strategist Larry Adam
notes that the betting odds on
PredictIt of the GOP retaining con-
trol of the Senate have slipped to
70% from 83% a month ago. A Dem-
ocratic win in Georgia could pose a
near-term headwind for equities,
given their 9.1% advance since Elec-
tion Day, since the incoming adminis-
tration’s tax-hike proposals could
lower 2021 earnings by about 10%,
he adds.
“N
ew highs” have differ-
ent meanings for the
stock and bond mar-
kets. New highs in
equities are cheered universally, with
big numbers such as Dow 30,
celebrated by investors sitting on
presumably big gains. For bonds, new
highs in prices translate into new lows
By Randall W.
Forsyth
Rep. Tom Reed (R.,
N.Y.), with members
of the bipartisan
Problem Solvers
Caucus, addresses
the need for
Shutterstock Covid-19 relief.