Seven Months of Jobs Growth Halted Economy lost 140,000 jobs in December while unemployment rate held at 6.7%
(…) Restaurants and bars drove last month’s decline. Forced to close or scale down because of the virus and cold weather, they cut 372,000 jobs. Other industries highly vulnerable to the spread of virus—hotels, museums, tourist sites—laid off workers, as did government agencies and schools. (…) Factories added 38,000 jobs last month, responding to higher demand for goods as households shift from spending money on vacations and other services to buying sofas, cars and other products. (…) But manufacturing represents only about 14% of the labor market. (…) State and local government employment fell by 51,000. (…)
Most other sectors added jobs last month, but the gains weren’t enough to offset the sharp decline in areas sensitive to the state of the pandemic. (…)
The pandemic and related restrictions led to 22 million job losses in March and April; about 12 million have been recovered since then.
President-elect Joe Biden on Friday said next week he would be “laying out the groundwork” for trillions of dollars in new relief. Democrats will control the White House and both chambers of Congress later in January. (…)
He also said he would seek to increase the federal minimum wage to at least $15 an hour, calling on Congress to pass the measure. (…)
The Payrolls Index (employment x hours x wages) rose 0.4% in December after 0.7% in November and 0.8% in October. This is a 7.8% annualized rate in Q4. Aggregate payrolls are now down 0.3% YoY and 1.4% lower than last February, the high watermark.
- Payrolls were revised up 135,000 for October and November.
- Private employment is down 6.2% YoY in December (-6.5% vs February), slightly worse than November’s -6.0%. Hours worked are up 1.2% YoY.
- Goods-Producing employment declined 853k (-4.0%) between February and December (manufacturing -543k or -4.2%) but has been rising MoM (+5.7% a.r. in Q4).
- Services-Providers shed 9 million employees (-6.8%) since February but have recovered 10.6 million of the 19.7 million lost by April.
There are encouraging signs but we are not out of the woods yet.
In the week that included the pay period the Labor Department’s jobs survey is based upon, there were 1.49 million newly reported Covid cases and 16,673 deaths, according to Johns Hopkins University, versus 1 million cases and 7,608 deaths during the same week in October. Over the seven days ended Thursday, there were 1.6 million new cases and 19,349 deaths, and there is a risk that the wave has yet to crest.
Canada’s labour recovery stalls, with more pain expected
The country lost a net 62,600 jobs in December, the first decline since April, Statistics Canada said Friday. The unemployment rate edged up to 8.6 per cent from November’s 8.5 per cent. With December’s backslide, about 636,000 fewer people are employed than in February, before COVID-19 escalated in Canada and damaged the job market. (…)
Employment fell again in both accommodation and food services (56,700) and culture and recreation (18,800). (…)
Conversely, there were also points of strength. Full-time jobs climbed by 36,500 in December, while a number of industries – such as manufacturing (15,400), professional services (16,800) and public administration (13,700) – registered hefty gains of their own. (…)
U.S. Consumer Credit Accelerates During November
Consumer credit outstanding increased $15.3 billion during November (0.3% y/y) following a $4.5 billion October rise, revised from $7.2 billion. A $9.0 billion increase had been expected by the Action Economics Forecast Survey.
Nonrevolving credit usage jumped $16.1 billion (4.0% y/y) following a $10.0 billion September gain, revised from $12.7 billion. Federal government borrowing, which issues over 40% of nonrevolving credit, grew 5.0% y/y. Depository institution loans (29% of credit) grew a greatly lessened 2.5% y/y, down from 6.8% y/y growth as of December 2019. Finance company borrowing (16.0% of loans) firmed 4.3% y/y and credit union loans (14.0% of the total) increased 4.2% y/y.
Revolving consumer credit balances eased $0.8 billion (-10.0% y/y) following unrevised $5.5 billion October decline. It was the eighth decline in the last nine months, which included double-digit balance pay-downs this spring. Credit provided by depository institutions (90% of the total and mostly credit card debt), dropped 10.0% y/y. Credit union borrowing fell 4.8% y/y and finance company loans fell roughly one-quarter y/y.
Long-Term Bonds Hit Hard After Georgia Senate Runoffs Democratic victories in the Georgia Senate races this week have spurred investors to bet on a higher spending government that will bring growth and inflation to the U.S. economy.
The 30-year Treasury yield has jumped by almost one-quarter of 1 percentage point since the start of the year to settle at 1.863% on Friday, according to Tradeweb. That is the highest yield since late February apart from one day in mid-March last year, when Treasury markets were gripped by the dash for cash at the onset of the Covid crisis.
The 10-year Treasury yield has also risen, breaching the 1% level for the first time also since the market dysfunction in March. (…)
The 10-year break-even rate rose above 2% this week for the first time since 2018. The 30-year break-even rate also rose above 2% this week for the first time since April 2019. (…)
-
Mohamed A. El Erian: Rising Treasury Yields Flash a Warning Sign The underlying drivers could create headaches for policy makers and stock investors.
(…) These moves come when Fed policy has continuously sought to repress yields substantially and keep them in a tight trading band. Should the moves continue, they would also challenge some of the strong drivers of funds into equities and other risk assets by reducing their relative attractiveness and by weakening the buy signals issued by models incorporating the discounting of future cash flows. Moreover, their persistence would be concerning for the economic outlook because of their underlying drivers and the potential impact on sectors sensitive to interest rates such as housing. (…)
The Democratic sweep of the two Georgia Senate runoff elections last week has increased the prospect of higher government budget deficits and much more debt financing. But with the Fed not only committed to maintaining its large-scale asset purchases but also open to increasing it and shifting more of the purchases to longer-dated securities, such a prospect should not have an immediate significant impact on yields.
The most likely drivers, then, are expectations for higher inflation and more hesitancy on the part of Treasury buyers. The former is supported by moves in inflation break-evens and other inflation-sensitive market segments. The latter is consistent with the considerable market chatter about how government bonds, being so highly repressed by the Fed and facing an asymmetrical outlook for yield moves, are no longer ideal for mitigating risk. (…)
The most dominant market view at the moment, and it is quasi universal, is that stocks and other risk assets will continue to rise because of the abundant liquidity injections coming from central banks and the allocation of more private funds. After all, central banks show no inclination of moderating their huge stimulus. And investors remain strongly conditioned by a powerful mix that has served them extremely well so far: TINA (there is no alternative to stocks) fueling BTD (buy the dip) behavior in response to even the smallest market selloffs, especially given FOMO (the fear of missing out on the recurrence of impressive market rallies).
As valid as these considerations are at this moment of time, they also warrant a close monitoring of the yield curve for U.S. government bonds. A significant continuation of recent trends would challenge the Fed, investors and the economy.
Stock market exuberance is here to stay, Credit Suisse says. Here’s why investors can be positive
(…) They said three key important components — the put-call ratio, the bull-bear ratio and risk appetite — were slightly extended but “not at sell signals.”
“Bullish sentiment is high but at these levels markets continue to rise two-thirds of the time over the next month and we think the bullish sentiment is not reflected in retail or institutional position — indeed net speculative longs on the S&P are below average,” they said.
The strategists’ only worry was that 80% of stocks currently sit above their 200-day moving average, which would typically see markets fall two-thirds of the time over the next month. However, they said: “But in the very early cycle, as we are, this is not a short-term sell signal.
“We think a Democratic clean sweep and the vaccine rollout underpin 5% global GDP growth this year.”
Beyond the near term, there were a number of strategic reasons to stay positive, they said, including “ultraloose” policy and an additional U.S. fiscal boost of close to 2% of gross domestic product. They also saw the start of a bond-to-equity switch, as institutions start to realize that bonds are becoming increasingly less diversifying, return-less risk. Excess liquidity was also consistent with a further rerating and earnings revisions were supportive, the analysts added.
Finally, there was the potential for a “funds-flow squeeze,” with corporate buying of stocks accelerating and retail buying having returned, while pension funds — with low equities weightings in Europe and neutral weightings in the U.S. — wouldn’t be sellers.
My favorite technical analysis firm continues to see “clear evidence” of high Demand intensity, reaching even the very weakest of stocks and argues that this bull is younger and more powerful than many believe.
EARNINGS WATCH
For those who still care about that, the Q4’20 earnings season begins Friday but we already have 18 reports in: the beat rate is 100% and the surprise factor +13.1% to +21.6%. Revenues beat by +3.0% to +9.7%.
Revisions are still up:
U.S. bank quarterly profits expected to fall again from pre-COVID levels When the biggest U.S. banks begin reporting fourth-quarter results on Friday some of the headlines could show profits plunged by as much as 40% from a year earlier, before the pandemic struck. (…) From those low points, banks could see profits more than double in first and second quarters of 2021, according to Refinitiv’s IBES estimates. (…)
-
Top US banks set for $10bn round of buybacks Wall St expected to near limits on repurchases as loan losses recede and capital markets soar
ISM Manufacturing vs SOX: The trend is your friend.
TikTok and Discord Are the New Wall Street Trading Desks Pandemic has led to surge of day trading, helping push stocks like NIO and Tesla to records amid online buzz
(…) These investors do more than just talk, though. They piggyback on each others’ ideas and trades, helping fuel the momentum that has propelled some companies to triple-digit or bigger gains in 2020. (…)
And while online discussions among investors aren’t necessarily new—in the late 1990s internet chat rooms dedicated to stocks helped sustain the tech-stock bubble—social media is more widespread than ever before. (…)
Gavin Mayo, a 19-year-old student at the University of North Carolina at Chapel Hill, says he typically spends anywhere from one to five hours a day scrolling TikTok, YouTube and other platforms for ideas on what to trade while churning out video snippets to more than 60,000 of his TikTok followers. (…)
As of January, posts tied to #stockmarket had garnered over 800 million views on TikTok, more than triple the figure in June. Reddit’s infamous WallStreetBets forum has more than doubled in subscribers since the start of 2020. StockTwits, a social network focused on investing and trading, has seen its user numbers more than triple over the past year. (…)
“We’re in a bull run until we’re not.” (…)
China hits out at US move to elevate relations with Taiwan Washington’s decision to abandon internal protocols governing diplomacy sparks anger
U.S. Weighs Adding Alibaba, Tencent to Stock Ban
Data Update 1 for 2021: A (Data) Look Back at a Most Forgettable Year (2020)! Aswath Damodaran is a Professor of Finance at the Stern School of Business at NYU. Very valuable work FYI.
COVID-19
It may have felt like a lot longer, but today’s the first anniversary of the first reported coronavirus death in Wuhan, China. Nearly 2 million people have been taken by COVID-19 since then. International experts investigating the pandemic’s origins will finally arrive in China on Thursday, after being blocked by the Chinese authorities, who now say it was a “misunderstanding.” Fortune
Still strongly correlated:
Watch the NE where cases are really accelerating from a comparatively low level. New York state cases reached 18,832 last Friday from 11,000 in mid-December.
More than 22 million doses had been distributed to states and other jurisdictions as of Friday, according to the Centers for Disease Control and Prevention, while 6.7 million people had received their first shot by that point. The figures were short of the U.S. goal of 20 million vaccinations by the end of 2020, and communities and states were still reporting bottlenecks this month as they managed their inoculation programs. (Bloomberg)
Goldman Sachs noted the slow vaccination start:
(…) we have adjusted our US, UK, Euro Area, and Japan growth forecasts over the past week. We now expect DM quarterly annualized GDP growth of 2.0% in Q1 (vs. 4.2% a week ago), 9.6% in Q2 (vs. 9.8%), 7.9% in Q3 (vs. 6.3%), and 5.1% in Q4 (vs. 4.7%). (…)
Building in a slower start but a steeper ramp-up in the spring, we still expect large shares of DM vulnerable groups to receive their first dose around the end of Q1 and a majority of the population to receive their first dose by midyear. The point at which 50% of the population has received their first dose looks likely to be April for the UK, May for the US, June for the EU and Canada, July for Australia, and August for Japan. (…)
We find that risks to our timelines from distribution remain mostly to the downside with benefits from higher distributional capacity limited by vaccine supply and demand.
China Allows WHO Experts in to Investigate Covid-19 Origins China has agreed to allow a team of World Health Organization experts to enter the country to investigate the origins of the coronavirus pandemic, days after the United Nations agency’s top official criticized Beijing for holding up the mission.
John Authers: Tesla’s Absurdity Amplifies the Tech Bubble Echoes
(…) No company during the tech bubble increased its market value by as much as Tesla did in the last 12 months. Back then, the internet was new and exciting, and a variety of players were beginning to experiment with ways to make money from it. There was plenty of news. Today, the prospects for electric vehicles look good, and Tesla leads the nascent market, but it still has a long way to go, with plenty of well entrenched players. Maybe Tesla’s long-term prospects are better now than those of Cisco and Amazon were when the first bubble came to a head. But any such claim has to rest on conjecture. Lots of things have broken just right for Amazon, the biggest and best-known specialist internet retailer, over the last two decades, and it has made a lot of great calls. As for Cisco, it continues to be the dominant provider of routers.
Now, let’s take a look at how investors fared if they bought any of those three great companies at their respective tops at the turn of the millennium:
In price terms, Cisco’s investors are still under water. Amazon shareholders had to wait out a decline of more than 90%, and didn’t show a profit on their investment for a decade; since then it has worked out brilliantly. Buyers of Microsoft at the top in 1999 had to wait 15 years to make a profit. And all of these are companies that looked as well established as Tesla does now (Amazon is a partial exception), and which have fulfilled the rosy expectations of them. (…)
TESLA HAS MORE SERIOUS COMPANY
2021 seems like a pivotal year for EVs: many more models, including pickups, and a lot more range. I offer links to some articles, a JP Morgan note on the Mustang Mach-E and a video of a well done comp between Tesla Y and the Mach-E. Only for your general interest or, if you are long TSLA, for your appreciation of the evolving competitive landscape.
I have been driving a Tesla Model 3 for a year, after about 30 years driving Audis and BMWs. The Model 3 is, by far, the best car I have ever had. Extremely comfy, great drive and outstanding software updated over-the-air every 2-3 months. Tesla’s software is unique in that it is all proprietary and totally integrated. No third parties, which makes it uniquely efficient and evolutive, probably Tesla’s most important competitive advantage. Time will tell how significant it remains over time.
- Here Is Every Electric Car You Can Buy in 2021 – MotorTrend
- 2021 is going to be the year for electric revolution – 10 new …
- Top 9 Electric Vehicles Coming to USA in 2021 – CleanTechnica
We Were Thoroughly Impressed by Our Test Drive of
Ford’s Mustang Mach-E & See Negative Implications
for Tesla Valuation (J.P. Morgan Securities LLC)
(…) Starting with the Mach-E, the vehicle upon first presentation appears very well put together, with the quality materials, fit, and finish (including sheet metal tolerance and interior craftsmanship) befitting of an upscale near-luxury model.
Its design is unique and we believe will appeal to many buyers, particularly as relates to its Mustang-esque styling cues, including sinewy sheet metal, trademark tail lights with sequential signaling, and a rakish side profile more emblematic of a sports coupe than a utility vehicle (while also preserving headroom for rear seat passengers).
On the road, it was fun and exciting to drive. The vehicle offers three driving modes — “Whisper”, “Engage”, and “Unbridled” — each offering a more aggressive throttle response and acceleration time, and a progressively sportier steering feel. The Unbridled mode was most impressive and we believe will delight consumers, particularly those new to the electric vehicle driving experience. (…)
Many reviews are of course comparing the Mach-E to its most obvious competitor, the also very attractive Tesla Model Y. We do not aim to argue that one vehicle is necessarily superior to the other (many consumers will continue to prefer the Model Y’s greater availability of semi-autonomous driving features and Tesla brand, while others will be attracted to the Mach-E’s styling and availability of a $7,500 federal tax credit).
But we do argue that Ford has succeeded in replicating Tesla’s success in creating a compelling battery electric vehicle that is sure to generate consumer pull, enthusiasm, and buzz, given that our driving experience was more akin to that of a Tesla and not at all like that of earlier more pedestrian BEVs such as the Chevrolet Bolt or Nissan Leaf.
And there are many more such vehicles on the way from additional automakers, including desirable German luxury brands. We see three negative implications for Tesla valuation: (1) a growing number of compelling offerings will increasingly compete with Tesla for battery electric sales and share (of course while also growing the overall pie); (2) the sales of these offerings will place downward pressure on the demand from other automakers for Tesla’s valuable Zero Emission Vehicle credits; and — most importantly — (3) as single-digit P/E automakers increasingly roll out similarly attractive battery electric models, we believe it will call into question the perceived paradigm shifting nature of Tesla’s vehicles and business model and, in turn, its industry unique valuation.
Ford is showing more and more signs of becoming a credible contender in battery electric vehicles — and yet while Ford produced 7.6x as many vehicles as Tesla in 2020, Tesla’s market cap is 21.5x greater. Ford is estimated by IHS Automotive to have produced 3.9 mn vehicles in 2020 vs. Tesla 0.5 mn (and 4.9 mn in 2021 vs. Tesla 0.8 mn) although its market capitalization of $36 bn is dwarfed by Tesla’s $774 bn. While we do not expect Ford to rival Tesla for number of battery electric vehicles sold (although Volkswagen, with a $99 bn cap, may), we do expect investors to increasingly take seriously its competitiveness in this area.