Succumbing to politics, stimulus talks done
Politics continues to dominate market chatter. There were two big developments last week. First, and most importantly for the here and now, Senator McConnell dismissed the Senate, signalling that stimulus talks are completely done for now.
While senators were told to prepare to return to Washington, D.C. with 24 hours notice, the next three weeks bring National Conventions and then the Labor Day holiday. The next stimulus bill looks like a September affair, perhaps coinciding with the budget negotiations due by the end of that month.
This will likely be a drag on the recovery, hurting spending by lower income households especially. Indeed, last week’s retail sales report showed a higher total level of spending than in February, pre-COVID, a heavy portion of that due to the generous stimulus checks from D.C. that are not currently flowing to households.
Does Biden VP pick signal middle-of-the-road campaign?
Former Vice President Biden chose the junior senator from California, Kamala Harris, as his running mate. This was not a surprise, as she was leading in the betting markets. But it appears to signal Biden’s intention to run a middle of the road campaign. Still, it remains too early for markets to move substantially ahead of this coming election. We think the Labor Day holiday, or perhaps the first Presidential debate at the end of September, will be the dividing line.
Bonds anything but quiet last week
If equities were quiet last week, bonds, at least by recent standards, were anything but! Yields shot higher for the second week in a row. While the U.S. 2-year yield rose only 2 basis points (bps) — again, the Fed isn’t hiking anytime soon — the 10-year and 30-year yields rose 15 and 21 bps, respectively. That’s the biggest weekly increase in the 30-year yield since early June.