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President-elect Joe Biden made the historic decision to appoint Janet Yellen, former chairman of the Federal Reserve, as his secretary of the Treasury. You don’t have an easy job ahead of you.
What’s Happening: Yellen, who, if confirmed by the Senate, would be the first woman in office, will be tasked with guiding the US economy out of the pandemic, as well as addressing the rampant inequality exacerbated by the crisis of Covid-19. In an age of deep partisanship, that is a very difficult role.
The battle lines of Yellen’s first big fight are already being drawn as the need for additional help from the government grows more acute.
House Democrats under Speaker Nancy Pelosi and Republicans led by current Treasury Secretary Steven Mnuchin have been unable to agree on another spending package to help struggling Americans and businesses. since March. Now, as Covid-19 cases rise, forcing a wave of new restrictions by local leaders, the urgency increases.
The situation could be even worse when Yellen takes the reins. A new model from Washington University in St. Louis projects that Covid-19 cases in the United States could nearly double in the next two months, demanding an increase in social distancing measures.
Yellen, who led the Fed from 2014 to 2018, when the US economy was still recovering from the 2008 financial crisis, has made his position clear on the need for more stimulus.
“While the pandemic is still seriously affecting the economy, we need to continue extraordinary fiscal support,” he said in a Bloomberg TV interview in October.
The question is whether Congress will cooperate. Wall Street has now largely discounted the expectation that something can be done this year, with little progress since the election.
Looking ahead: Control of the Senate, which could give Republicans significant influence, comes down to a series of runoff elections in Georgia in early January. This will be crucial in determining the way forward, according to Alec Phillips of Goldman Sachs.
“Senate scrutiny is probably the single most important factor in determining the total amount of fiscal support,” he said in a recent investigative note. “The fiscal stimulus is likely to be much less in a divided Congress and the size is likely to shrink the longer it takes Congress to pass the legislation.”
Yellen is known as a clear communicator. But you may have trouble achieving your goals under the conditions.
The opinion of Wall Street: investors like Yellen, whom they consider to be in sync with current Fed chairman Jerome Powell.
“The US economic response to the pandemic may benefit from a more closely coordinated response from the Fed and the Treasury,” Mark Haefele, chief investment officer at UBS Global Wealth Management, told clients Tuesday.
Both Yellen and Powell consider themselves doves who will be in favor of maintaining policies to support the economy for some time. Powell and Mnuchin, meanwhile, have recently clashed over the Trump administration’s decision to disconnect the Federal Reserve’s emergency loan programs.
Wall Street also sees Yellen as a well-known entity that is not expected to be as bold as, say, Sen. Elizabeth Warren in pushing for regulation of corporate players like big banks.
But my colleague at CNN Business, Matt Egan, notes that in early 2018, Yellen imposed unprecedented sanctions against Wells Fargo for “widespread consumer abuse.” The sanctions, which remain in effect today, hampered the bank, which has yet to recover.
Executives prepare for Biden’s presidency
The U.S. General Services Administration informed President-elect Joe Biden on Monday that the Trump administration was ready to begin the formal transition process. But Corporate America has wasted no time in orienting itself toward the Biden era, reports my colleague from CNN Business, Paul R. La Monica.
“I want to end by congratulating President-elect Biden,” said Walmart CEO Doug McMillon, who also serves as chair of the prominent Business Roundtable, during the retailer’s earnings call last week.
Senior executives have expressed hopes for a more stable political environment after nearly four years of disturbing tweet storms.
“Biden, throughout his career, has shown a tendency toward pragmatism,” Kevin Chavous, president of academics, policy and schools for online learning company K12, said during a virtual investor day last week. “He has never really ventured too far to the left and has often gone out of his way to open the doors to conversations with congressional leaders on the right.”
Others have been busy trying to figure out what Biden’s policies will mean for their bottom line, particularly on issues like trade and regulation.
“Comments from the Biden camp do not indicate any early weakening of the stance with China,” Jeremy Smeltser, chief financial officer of plumbing and appliance supply company Spectrum Brands Holdings, said in an earnings call on Nov. 13.
And the lobbying is already beginning in earnest.
In an open letter dated Monday, Intel CEO Bob Swan urged the new administration to invest more in digital infrastructure and manufacturing.
“Your planned investment in American-made products is critical to America’s leadership in innovation and technology,” Swan wrote.
Extreme greed is ruling the market again
Bulls are firmly in control of equity markets as vaccine optimism takes hold, raising expectations that indices such as the recent record high S&P 500 may continue to rise next year.
See here: The CNN Business Fear & Greed Index, which tracks market sentiment, is now in “extreme greed” territory, having risen last week.
Strategists are implementing ambitious targets for stock performance next year, despite a lack of clarity on the mechanics of vaccine delivery.
Ed Yardeni, president of Yardeni Research, told clients on Tuesday that he now believes the S&P 500 could hit 4,000 points by the end of next year, pointing to the number of companies revising earnings expectations higher. That would be a jump of almost 12% above Monday’s close of the index.
“The rebound in consensus earnings expectations for 2020 has been remarkable in the circumstances (of the pandemic),” Yardeni said.
Goldman Sachs is even bolder, predicting the S&P 500 will hit 4,300, a 20% increase over current levels, by the end of 2021. While hope has propelled markets higher for much of this year, the bank believes the next phase of the rally is about to set in.
“From a market perspective, the crucial issue now that the [US] “Elections are out of the way, that’s what will happen to growth,” Goldman strategists said. “This is now increasingly dependent on a Covid vaccine.”
Until next time
Abercrombie & Fitch, Best Buy, Dick’s Sporting Goods, Dollar Tree and JM Smucker report the results before the US markets open. American Eagle, Dell, Gap, HP and Nordstrom follow after the shutdown.
Also Today: US Consumer Confidence Data For November releases at 10 am ET.
Coming Tomorrow: Initial US jobless claims for last week are expected to be 730,000, slightly down from the prior week.
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