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Market Update

Fiscal stimulus hope pushes equities higher

January 25, 2021
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    Bill Smith

    Associate Director
    Balance Sheet Risk Management

    Financial Institutions | Kennett Square, PA


The major U.S. equity indices moved higher last week, setting new all-time highs, as the expectation of additional fiscal stimulus outweighed concerns over mixed economic data and the emergence of COVID-19 variants.

Prior week summary

The major U.S. equity indices moved higher last week, setting new all-time highs, as the expectation of additional fiscal stimulus outweighed concerns over mixed economic data and the emergence of COVID-19 variants. President Joe Biden was sworn in as the 46th President of the United States on Wednesday, and many market participants are encouraged by the prospect of another round of fiscal stimulus. President Biden unveiled a $1.9 trillion proposal earlier in January that calls for direct payments to qualifying individuals of $1,400, an increase in the supplemental unemployment insurance from $300 to $400 per week, and an extension of the Pandemic Unemployment Assistance program through September 2021. While negotiations have yet to take shape, analysts see the proposal as an opening bid that is likely to receive opposition from Republicans, mainly due to price, as the proposal comes less than a month after the passing of the $900 billion COVID-19 relief bill at the end of December. Former Federal Reserve Chair Janet Yellen, President Biden’s nominee for Treasury Secretary, received unanimous approval, 26-0, from the Senate Finance Committee on Friday and is expected to receive full Senate confirmation on Monday. During her confirmation hearing on Friday, Yellen urged support for a fiscal stimulus bill saying, “The most important thing in my view we can do today to put us on a path to fiscal sustainability is to defeat the pandemic, to provide relief to American people, and then make long-term investments that will help the economy grow,” but acknowledged concerns over the rising national debt and looked to calm those fears saying, “Neither the president-elect, nor I, propose this relief package without an appreciation for the country’s debt burden. But right now, with interest rates at historic lows, the smartest thing we can do is act big. In the long run, I believe the benefits will far outweigh the costs, especially if we care about helping people who have been struggling for a very long time.”

As of Sunday evening, the global tally for COVID-19 cases sits just under 100 million cases at 99.5 million with nearly 2.2 million individuals succumbing to the virus worldwide. The U.S. accounts for approximately a quarter of the world’s cases, but the rate of new cases has slowed considerably in the last two weeks. After reporting a pandemic record 309,180 cases on January 8, the daily case count has fallen sharply with 188,933 new cases reported on Friday. Consequently, the seven-day average for new cases has declined significantly with the U.S. averaging 179,536 new cases per day over the last week compared to the pandemic-high, seven-day average of 246,321 new cases on January 11. While cases and deaths have been trending lower in the U.S., fears of the emergence of new COVID-19 variants have market participants on edge. Early indicators suggest that the U.K. variant is not only more transmissible but also more deadly according to Prime Minister Boris Johnson. Speaking to reporters on Friday, Johnson suggested that the new variant may be more deadly saying, “Early evidence suggests the variant of coronavirus that emerged in the UK may be more deadly,” but cautioned, “I want to stress that there's a lot of uncertainty around these numbers and we need more work to get a precise handle on it, but it obviously is a concern that this has an increase in mortality as well as an increase in transmissibility.”

In a light week for economic data releases, market participants received updated data on the housing sector, the labor market, and the manufacturing and service sectors. Jobless claims remained notably elevated last week, although they moved off of the multi-month high seen the week prior. For the week ended January 16, 900,000 jobless claims were filed, below the 926,000 claims seen the week prior. Continuing claims also trended downward with 5.05 million individuals continuing to receive unemployment benefits compared to the 5.18 million individuals the week prior. The housing sector continues to show strength as 1.669 million housing starts were reported for December, above consensus estimates and the 1.547 million starts seen in November. Existing home sales also surprised to the upside with 6.76 existing home sales reported in December. The flash readings for both the Markit manufacturing PMI and the Markit services PMI topped expectations and remained in expansionary territory. The Philadelphia Fed Business Outlook Survey significantly topped expectations reporting a 26.5 level, well above analyst calls for a 10.5 reading and the 9.1 level seen in December.

The look forward

Market participants will be looking forward to the release of updated figures on durable goods orders, consumer confidence, fourth-quarter GDP, new home sales, jobless claims, and consumer spending, among others. The FOMC will hold its first monetary policy meeting of 2021 on Tuesday and Wednesday.

Rates snapshot

Market implied policy path (Overnight indexed swap rates)

Source: Chatham Financial

About the author

  • Bill Smith

    Associate Director
    Balance Sheet Risk Management

    Financial Institutions | Kennett Square, PA


Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit

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