Over the month of March there have been quite a few details concerning the “markets” which are now in the books as known knowns. You have had the finality of what many may consider the most important defining earnings season being reported. i.e., Q4 covering the holiday shopping season of 2020. You have also had a Fed. meeting (e.g., scheduled 2 day conclave, FOMC) a joint meeting a new Treasury Secretary (Ms. Yellen), along with Fed. Chair Mr. Powell before both House and Senate committees and more.
What you also have had during this period is what the new President (Mr. Biden), along with his various appointees, are either suggesting or implementing for change in regards to the economy. i.e., $1.9 Trillion stimulus, etc. Not to mention all the executive orders that have yet to be introduced that are currently unknown. (i.e., we are not yet 100 days into the new administration that stated it would sign one near every day, so, do the math.)
The other aspect to the above is we are now concluding the final month for all the above into the newest quarter which is now Q1 of 2021. As I’ve iterated ad nauseam prior, month end, especially one that is a defining one for a quarterly end, is where there can be more shenanigans than during a quadruple options expiry (e.g., Quad-witching) which we just so happened to have had last week. Yes, it’s been quite a month.
But now there is something on the horizon that has the potential to dwarf everything and affect these “markets” going forward in ways that many may not give full appreciation, which is…
The President’s address to the nation regarding a new infrastructure plan, and more importantly: how he defines it will be paid for.
It has been reported the new spending is slated to be somewhere in the three $Trillion range. Whether one thinks this is a good idea or not is immaterial. What needs to be focused on is just how these “markets” perceive how its slated to be paid for, which is: taxation.
Again, it does not matter if you’re for this, against it, or just like parts. It does not matter. All that matters is how Wall Street views it. And as I stated in the title – we are at a point in time precisely the same as when Mr. Trump took office and laid out his initiatives. And the differences between then and now are completely anathema to each other from a “market” viewpoint.
If one remembers back to through 2017 the “markets” were a near rocket ship run straight up. Why?
Hint: the tax cuts and more, which if implemented, would significantly enhance the accounting at the bottom line for publicly held companies in ways that would be material beneficial. And Wall Street front-ran that possibility to its conclusion with the finality of them being signed into law almost a year later. Many (including yours truly) did not think it was going to pass. Yet, that did not matter to the “markets” as an incessant bid remained in the “markets,” because the material affect was far too great if passed and being behind-the-curve was not an alternative to be made up later.
By all accounts it appears Mr. Biden is going to reverse all of that material affecting with new taxes and resetting of old ones back to prior levels as to pay for this newest initiative.
To be clear: it does not matter if you agree with any of the new proposals or not. All that matters is how the “markets” view them. And if they view them precisely in the opposite fashion that they viewed the prior in 2017? Again, hint: what seems to always go up might just suddenly go down.
The “markets” are going to give Mr. Biden every opportunity to clarify. However, once they (“markets) have decided they’ve heard enough to start taking action, things could get messy and fast.
Not saying it will, what I am saying is you’d have to have your head in the sand if you don’t think what was possible with large tax cuts could not be the same, in the opposite, with large tax increases. To do otherwise would just be crazy.
Yet, we’ve been in a “market” for over a decade that is just nuts. So, I guess, maybe it’s all just over-noodling. As always, we shall see.
I’ll only conclude with the following, just for some food for thought in this matter, which is this…
Just last month (February) Apple™ supposedly reported earnings that were, for all intents and purposes, blockbuster that was suppose to make people like myself calling for caution to shut-up. And yet, as the “market” has once again hit record highs Apple is toying with going into a Bear market simultaneously, along with Tesla™ losing a third of its market cap.
But what do I know.
© 2021 Mark St.Cyr