Every Friday, Brian Jacobsen provides perspective on key events and topics of the current week and his thoughts about what the week ahead may hold. Here’s his report for the week of February 6–12, 2021.

The week that was

  • Lunar New Year began. 2020 was the year of the rat. 2021 is the year of the ox. Here’s to hoping that the economy or the markets don’t get gored on the horns of the ox!
  • Going into earnings season for the fourth quarter, companies within the S&P 500 Index were expected to show an 8.32% year-over-year decline in earnings per share. Sales were expected to rise 0.34%. With 75% of companies reporting earnings, earnings growth is coming in at 2.75% year over year and sales are coming in at 2.82%, both better than expected.

Economics:

  • Federal Reserve (Fed) Chair Jerome Powell spoke at a conference.
    • There’s been some worry over whether additional stimulus in the form of checks to households might prove to be too much and trigger some inflation. Chair Powell said that a surge in spending might not be that large and that it might not be sustained. He seemed to draw a distinction between a temporary rise in inflation versus a sustained rise in inflation. From his comments, Chair Powell seems to believe that as long as the public’s long-term inflation expectations stay anchored, the Fed can ignore any transitory inflation from extra stimulus spending.
    • While the unemployment rate came down to 6.3% in January, Chair Powell said the real rate of unemployment was probably closer to 10%. Many people have had to leave the labor force to stay home with children or because their employers have closed and the individuals aren’t looking for jobs.
  • The Congressional Budget Office (CBO) said the federal budget deficit is expected to come in at $2.3 trillion. That’s down from the $3.1 trillion in 2020, but it doesn’t include any spending proposed under President Biden’s stimulus plans. The CBO said debt held by the public (which includes what the Fed holds) is expected to rise to 107% of gross domestic product (GDP) by 2031. For perspective, Japan’s is nearly 250% of GDP. Fed officials have been encouraging more government spending, figuring that the economy is still in the recovery room and that we can wait to worry about fiscal prudence until the economy has fully recovered.

Politics:

  • The United Nations’ International Atomic Energy Agency said Iran is producing uranium metal, which is used in the core of nuclear weapons. President Biden said the U.S. will not lift sanctions on Iran until it abides by the 2015 nuclear accord.
  • President Biden had a phone call with Chinese President Xi. Reportedly, they discussed U.S. concerns with China’s aggressive economic policies, China’s human rights abuses, and how China is taking away political freedoms in Hong Kong.
  • Impeachment hearings of former President Trump were wrapping up.

The week to come

Thanks for reading, stay informed!

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