February 23, 2021
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🇺🇳 Trivia: Known as "The First Lady of the Struggle," this 20th-century pioneer was an adviser to President Franklin D. Roosevelt, a part of the U.S. delegation that created the United Nations charter, and had her childhood home in Daytona Beach, Florida, and her home in Washington, D.C., declared historic landmarks.
1 big thing: Market divergence continues
Tech stocks suffered some big losses on Monday, as the specter of higher U.S. borrowing costs continued to weigh on their share prices, while bullish vaccine expectations helped make the Dow the only major U.S. index to end in the green.
What happened: The benchmark 10-year Treasury yield rose to 1.37%, a fresh one-year high, showing investors remain bullish on the economy and a recovery in inflation.
- Yields on the 10-year have risen by around 26 basis points since the start of the month and are on track for their largest monthly gain in three years.
- That's good news for the broader economy, as it shows investors foresee higher growth and rising inflation, but bad news for stocks that have flourished in the negative real rate environment that has been in place since early in 2020.
- That's when the Fed unveiled its QE4ever program and announced it would buy an unlimited supply of U.S. government bonds as well as some corporate bonds — buoying tech stocks, especially, to record high prices and extreme valuations.
The big picture: Along with the jump in bond yields, oil jumped by nearly 4%, gold and silver rose and commodities rose to their highest in almost eight years, as investors continued to buy assets that will benefit from reduced COVID-19 cases and a growing economy.
Between the lines: Despite a 2% decline in Boeing stock after the grounding of 69 of its 777-model jets following the engine failure on a United Airlines flight from Denver on Saturday, U.S. airlines soared with the JETS ETF up 3.5%.
Heads up: In another sign of the mood shift in the stock market, Tesla's stock declined again, dropping 8.6% on Monday. The stock is down 14.9% so far in February and has gained just 1.3% year to date.
- Tesla shares rose 743% in 2020.
What's next: Investors will be anxiously awaiting statements from Fed chair Jerome Powell today and tomorrow as he testifies before Congress about monetary policy.
- Powell and other members of the Fed's rate-setting committee have consistently talked up their desire to see consistently higher U.S. inflation.
- Now that inflation expectations are moving the price of food, gas, mortgages and other staples of the economy higher, investors are anxious to see if the chairman sticks to his guns.
Don't sleep: Despite protestations from Powell that the Fed "isn't even thinking about thinking about thinking about" raising rates, speculators are beginning to price in a Fed rate hike this year.
- CME Group's FedWatch tool shows Fed fund futures pricing in an 11% chance of a hike by December.
2. Catch up quick
The House is on track to pass President Biden's $1.9 trillion relief package, which is expected to include $422 billion in stimulus checks, $350 billion for state and local governments, increased supplemental unemployment benefits, and $15 minimum wage. (CNBC)
WeWork co-founder and former CEO Adam Neumann is in talks with SoftBank on a nearly $500 million cut in his payout that would help clear the way for WeWork's second attempt at an IPO. (WSJ)
3. Brazil investors eye the worst-case scenario
Axios Capital author Felix Salmon writes: Brazil's markets tumbled on Monday, with state oil company Petrobras losing 19% of its value after president Jair Bolsonaro announced he was firing the company's Chicago-educated CEO and replacing him with a former general.
Why it matters: Bolsonaro pledged to "put a finger on electricity" — to keep prices at artificially low levels, worrying investors who had previously been counting on him to have more of a laissez-faire approach to industry.
Flashback: The headlines coming out of Brazil are reminiscent of the way in which Venezuelan president Hugo Chavez dismantled his country's oil-production infrastructure after he came to power in 1999, starting with the forced resignation of Luis Giusti, the head of the state-owned oil company.
By the numbers: Venezuelan oil production has reached formerly unthinkable lows, given that the country sits on the largest oil reserves in the world.
- Venezuela's 300 billion barrels of reserves now produce less than half a million barrels a day of oil.
- Brazil's reserves are tiny in comparison — less than 13 billion barrels — but the company is producing far more oil, about 3 million barrels per day.
Between the lines: Technocrats tend not to fare well under populist presidents, be they of the right-wing or left-wing variety. Venezuela's PDVSA was an extremely well-run company before 1999, and Petrobras has been reasonably well-run until now.
- But when an ex-military president takes over and puts generals in charge, loyalty to the regime tends to be rewarded more than professional competence.
4. Fed treads water on trust
Trust in the Federal Reserve was unmoved from its late January level, as overall positive momentum for the central bank's trust among Americans looks to have stalled out just below 40%, according to the latest Axios/Ipsos poll.
Why it matters: Powell will head into his testimony with Congress over the next two days to make his case that the Fed's current take on monetary policy is helping Americans.
- Given the high rate of joblessness and rising price levels around the country, the Fed could become a lightning rod for criticism.
- Republicans already tried to significantly roll back the Fed's powers as part of the relief bill that was signed in January and succeeded in putting some restrictions on the central bank's powers.
Flashback: The Fed's trust among Americans had risen significantly in the December Axios/Ipsos poll, with 42% of respondents saying they had at least a fair amount of trust in the Fed.
- That was the second straight month trust in the Fed had risen and the highest level since questions about the central bank were added to the survey in May.
- However, that progress appears to be fading.
By the numbers: 39% of respondents said they had some or a great deal of trust in the Fed (34% saying a fair amount and 5% saying a great deal) while 60% said they had not very much trust or none at all (39% had not very much trust, while 21% had no trust at all).
The big picture: Trust in the Fed remains negative and well below where it was in May when 47% of those polled said they had at least a fair amount of trust and 51% said they had not very much or no trust at all.
Thanks for reading!
Trivia: Known as "The First Lady of the Struggle," this 20th-century pioneer was an adviser to President Franklin D. Roosevelt, a part of the U.S. delegation that created the United Nations charter, and had her childhood home in Daytona Beach, Florida, and her home in Washington, D.C., declared historic landmarks.
Answer: Mary McLeod Bethune
BTW: A reader pointed out that I hadn't mentioned that Lewis Latimer, the answer to yesterday's trivia question, was Black. He was. As are all of the people who have been the subject of trivia questions during this, Black History Month.