Jan 15, 2021

Axios Markets

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🎙 "Whatever affects one directly, affects all indirectly." — See who said it at the bottom of the newsletter.

1 big thing: Political ETFs see an opening

Illustration: Aïda Amer/Axios

Those betting that people want to align stock investments with their political views saw a huge opening this week.

  • Enter two ETFs tickers "MAGA" and "DEMZ" — designed to invest in companies that overwhelmingly give to either Democrats or Republicans.

Why it matters: Much of corporate America is at least temporarily turning off the political donation spigot. But who they supported was pushed into the mainstream like never before in the wake of the Capitol mob attack.

What they’re saying: "The world now is paying a lot more attention" to where companies give politically, Jason Britton, who launched the DEMZ ETF on Election Day, tells Axios.

DEMZ tracks companies that have given on average at least 75% of political contributions to Democratic PACs or candidates in the past three cycles.

  • Among its 50 components: Apple, IBM, Disney and M&T Bank.

MAGA is just the opposite, leaving it overly exposed to GOP favoring industries (oil & gas, for one).

  • "I've had more interest in the last few weeks than I had previously," Hal Lambert, a Trump supporter who created the MAGA ETF in 2017.
  • "People are upset about basically canceling President Trump, and they're upset about the election."
  • (No, he's not considering changing the Trump-influenced ticker, at least for now — despite the swift turn away from Trump across the board.)

Yes, but: Both MAGA and DEMZ have seen only a slight uptick of activity in recent days, according to FactSet data.

  • And they are a tiny sliver of the trillion-dollar ETF market: MAGA has just over $10 million assets under management — and charges $7.20 annually for every $1,000 you invest.
  • DEMZ has one-fifth of that amount under management, with an expense ratio of 0.45%.

Between the lines: The pause in political donations could muddle the makeup of the ETFs, depending on how and when companies move forward.

  • By Britton's count, Alphabet is the only DEMZ component that’s paused donations across the board.

There could be an effect for the MAGA index down the line, thanks to some companies blacklisting GOP members who voted against election certification.

  • Charles Schwab, a MAGA component, is ditching its PAC altogether.

Worth noting: Other politically focused ETFs — “GOP” and “DEMS” — closed in 2018, just one year after launching.

Bonus: MAGA returns, charted
Expand chart
Data: FactSet; Chart: Axios Visuals

MAGA ETF investors missed the Big Tech run-up that’s led the market higher. It has little exposure to technology companies, which tend to lean Democratic in their political donations.

  • It’s never beat the S&P 500 on an annual basis.

DEMZ launched two months ago, but it would have outperformed the S&P every year since 2016, according to a backward-looking price return analysis by S&P Dow Jones Indices.

2. Catch up quick

JPMorgan Chase made a record $12.1 billion in profits in the final quarter of 2020 — in part due to a bump from a release of funds set aside for bad loans. The booming trading division helped, too. (Reuters)

The Trump administration added Xiaomi (the third-largest smartphone maker) to a list of blacklisted Chinese companies — restricting Americans from buying its stock. (CNBC)

3. Dual assurances from Biden and Powell
Source: U.S. Department of LaborFRED; Chart: Axios Visuals

President-elect Joe Biden and Fed chairman Jerome Powell had two messages in public remarks on Thursday:

  • Biden's: Help is on the way.
  • Powell's: Help is here to stay.

What Biden's saying: "In this moment of crisis, with interest rates at historic lows, we cannot afford inaction," Biden said while unveiling his $1.9 trillion relief package.

Powell cautioned the Fed won’t pull back anytime soon Thursday afternoon.

  • He said interest rate hikes are a long way off and played down the possibility of a persistent inflation spike.
  • "Now is not the time" for the Fed to talk about exiting its massive bond-buying program, Powell said — despite suggestions to the contrary by other Fed members.

Between the lines, via the University of Oregon's Tim Duy: A bigger economic package "now suggests more progress toward recovery which in turn suggests earlier tapering. It’s kind of hard to avoid that conclusion."

The backdrop: More signs of economic pain in the face of a surging virus. New applications for unemployment benefits across programs soared to a seven-month high.

  • It "raises the specter that we could see more jobs lost in January, meaning there is more of a risk the situation gets a little worse before it gets better," Beth Ann Bovino, U.S. chief economist at S&P Ratings, writes in a note.

The bottom line: You won't see the economic pain "if your scorecard is how things are going on Wall Street," Biden said.

  • "But you will see it very clearly if you examine what the twin crises of a pandemic and this sinking economy have laid bare."

Go deeper on Biden's plan.

4. The missing relief money

Illustration: Sarah Grillo/Axios

A chunk of stimulus payments is missing in action, thanks to a mix-up that put millions of checks into invalid bank accounts.

Why it matters: The IRS (by law) was supposed to get all payments out by today. Now the onus could shift to Americans to claim the money on their tax refund — further delaying relief to struggling, lower-income Americans.

What's going on: Billions of dollars are being returned to the IRS by tax preparers because of the error, though the agency wouldn't say how many payments were incorrectly deposited.

  • Jackson Hewitt estimates funds went to 13 million accounts that are no longer open.

What’s next: "You can wait until the money shows up, or you’re going to file your return and claim your money there," Janet Holtzblatt, a senior fellow at the Tax Policy Center, tells Axios.

  • "There’s going to be confusion" about which option to pick.

Keep reading.

5. Survey: Business is where ethics meet competence
Adapted from Edelman Trust Barometer; Chart: Andrew Witherspoon/Axios

Axios’ Felix Salmon writes...Business is both ethical and competent — something that can't be said for the media, government, or even NGOs, according to a major survey from Edelman spanning 28 countries.

By the numbers: Business saw its reputation for being ethical improve by 7 points last year, bringing it solidly into positive territory. Government improved more, but remains the least-ethical institution in the public's mind.

  • Only business is considered competent; the other three sectors all receive a negative score on that front, with media deteriorating the most.

Quote: "Whatever affects one directly, affects all indirectly."

Who said it: Martin Luther King Jr. — born on this day in 1929. He would go on to become the most influential civil rights activist until his assassination in 1968.

Markets is off for Martin Luther King Jr. Day. Dion's back on Tuesday. Happy weekend!