DIASTOLE ECONOMIC AND MARKET COMMENT
February 8, 2021
There were two different jobs numbers last week. The first one told us that 779,000 people filed for new unemployment claims during the prior week. This was slightly less than in recent weeks, but still way above the pre-pandemic high. The second one told us that 49,000 net new jobs had been created in ALL OF JANUARY. Analysts had not been expecting many, but this number still fell short. The unemployment rate fell from 6.7% to 6.3% - not on the strength of new hiring, but because people are falling out of the jobs market.
And because of these disappointing jobs numbers, the markets rose to new highs. Huh? It’s another case of the “bad news equals good news" phenomenon. In other words, with such disappointing employment figures, the need for the entire $1.9 trillion Covid stimulus bill that is being proposed by the Biden Administration becomes more obvious, and passage of the bill becomes more likely.
Janet Yellen, the new Treasury Secretary, has just said that if the whole stimulus bill passes, we are likely to return to full employment within a year. I hope that’s true. But unsaid is the obvious point that we will not return to full employment until we have the Covid-19 pandemic under control, and right now, new variations of the virus are confounding efforts to fight it.
In South Africa, authorities are discontinuing use of the Astra-Zeneca vaccine, because it doesn’t work well against the South African variation. There are also variations from the United Kingdom and Brazil, and scientists are racing to learn if current vaccines will prove effective against them.
The Johnson & Johnson one-shot vaccine, which just received emergency approval for use in the United States, has proven most efficacious against severe cases of Covid, and less useful for mild cases. That is better than the alternative. If we can vaccinate enough people that we reduce the number of hospitalizations and deaths, we will be making real progress in the fight against Covid.
But when will we all be vaccinated? My niece, a social worker, has received two doses. My neighbor, who is 87, will receive her second shot this week. I think I’m on the schedule for sometime in June. Hopefully of this year. Nothing can go back to normal until we’re halfway from third to home.
Last week we talked about trading in GameStop through online platform Robinhood. GameStop is down to $59 per share, after reaching a recent height of $347. Serious, long-term investors are now looking for the “next” GameStop, assuming that they will have the perspicacity to know when to buy and when to sell. It is reported that teenagers are now taking their money to Robinhood, thinking that they’ll benefit from the next bubble. When the fear of missing out (FOMO) trumps a healthy skepticism about stock prices, usually we are near a market top. (Institutional investors watch market data, and if the market is being moved by individuals, they take note and take profits. Historically, individual investors are late to bull markets.)
But there are factors that could continue the current stock rally (everything is up! everything is at a record! Amazon will soon own everything!), like the passage of the stimulus bill mentioned earlier, good news on the results of current vaccines against new strains of Covid, new vaccines coming to market, and continued low interest rates that make stocks more attractive than bonds.
Other things are also happening today. Italy has asked Mario Draghi, former President of the European Central Bank, to form a government and serve as Prime Minister. This is a big step forward for Italy, which sometimes selects a corrupt nitwit as Prime Minister.
Oil prices are higher, based on recovering demand and prior production cuts. Supply and demand in action!
Richard Branson, of Virgin-Galactic fame (Virgin-everything fame) has formed a SPAC (special purpose acquisition company) to buy 23 and Me. A SPAC is designed to complete a corporate purchase and then go public with an initial public offering (IPO), or, if no company is acquired, the investors receive their money back. But each SPAC is slightly different, so ?
In Elon Musk news, Tesla just bought $1.5 billion worth of bitcoin, and has announced that bitcoin will be accepted for Tesla automobile purchases in the near future. At SpaceX, the announcement that civilians would be accepted for SpaceX rocket missions was overshadowed by the weekend’s unmanned SpaceX rocket crash landing. Still, Elon Musk is now the richest guy in the world (we don’t count Vladimir Putin, because who knows…), so, a pretty good week for him.
For the week ending February 5th, the Standard & Poor’s 500 closed at 3,886, the Dow Jones Industrials at 31,148, and the Nasdaq Composite Index at 13,856. The yield on the ten-year Treasury Note finished at 1.19%. U.S. crude oil cost $56.85 per barrel, N.Y. gold cost $1,810.90 per ounce, and one Euro was worth $1.2050.
Elizabeth E. Cook
News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including, but not limited to The New York Times, The Wall Street Journal, Business Insider, Bloomberg, Yahoo Finance, CNBC, CNN, Barron’s, The Economist, Reuters, and The Associated Press. If you have questions, please call us at 203.458.5220 or reply to this email to reach me, Liz Cook. Email addresses for other Diastole team members are on our website.
So the groundhog saw his shadow last week, and we’ve had nothing but snow since then. I guess he was right? It turns out that Punxsutawney Phil has a 50% track record for predicting the end of winter. Maybe he throws little furry dice while he’s in his Groundhog Ground Hole? And maybe I should challenge him for his strenuous one-day-a-year job? I can throw dice, too!