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  • The Nasdaq 100 outperformed as tech stocks gained from falling bond yields.
  • But the rest of the market also faired pretty well with the S&P 500 and Dow also gaining.
  • Chatter surrounding the next fiscal stimulus package grew on Monday and will likely be a talking point this week.

It was a pretty solid start to the week on Wall Street; the Nasdaq 100 performed the best of the major indices, gaining 1.7% amid a drop in long-term US government borrowing costs that favoured duration-sensitive Big Tech and growth names. The index managed to reclaim the 13K level. Tech outperformance saw the S&P 500 gain 0.7%, but most of the rest of the market was also doing ok with the Dow also gaining 0.3%. Small caps did not fare so well, with the Russell 2K dropping 0.9%, despite increased fiscal stimulus talk on the day.

The CBOE Volatility index saw a large drop of more than two vols to under 19.0 (closing at 18.88). In terms of the sectors; as noted, Tech did well with the S&P 500 information technology sector gaining 1.9%. Amid the drop in yields, the S&P 500 financial sector did the worst, dropping 1.3%, with some market participants arguing the sector is still feeling the negative impact of last Friday’s decision by the Fed not to extend SLR. Meanwhile, amid the recent sell-off in crude oil prices, the energy sector struggled, dropping 1.0%.

Fiscal stimulus talk

Talk regarding the next US fiscal stimulus package gained some momentum on Monday; the New York Times reported that US President Joe Biden’s economic advisors are working on a $3T new spending package to present to him. According to the report, the package will be split into two parts, with the first focused on infrastructure and will be financed through increased corporation taxes and higher taxes on the rich. The report said that “Biden supports all of the individual spending and tax cut proposals under consideration, but it is unclear whether he will back splitting his agenda into pieces, or what legislative strategy he and Democratic leaders will pursue to maximize the chances of pushing the new programs through Congress given their narrow majorities in both chambers”.

Market participants tend to agree that a large infrastructure investment package would likely provide a lasting boost to US economic output through the multiplier effect, even if it was to be funded by higher taxes on corporations and the rich – hence, stocks look to be taking this talk of further stimulus as good news, i.e. that the boost to future earnings growth will more than offset corporation tax hikes.

Note that the White House released a response to the NYT article, claiming that the proposals outlined in the report are not “a reflection of White House thinking”. But where there is smoke there is fire, investors will be thinking.

Coming up this week

Tuesday will be a busy one for Fed speak; Fed Chair Jerome Powell is scheduled to speak at 16:00GMT in the first day of his testimony to the House Committee on Financial Services. He will be testifying again on Wednesday but will likely repeat his remarks from the first day. Powell is likely to stick to his usual dovish script in the Q&A section of the testimony. The pre-released remarks, which came out recently, contained no new info; he notes that the economic recovery is far from complete, though the situation is getting better and economic indicators are improving. Fed members Joh Williams, Lael Brainard, Raphael Bostic, Thomas Barkin and James Bullard.

Wednesday sees the release of February Durable Goods Order and preliminary Markit PMIs for the month of March, as well as (as noted) further testimony from Fed Chair Powell and more remarks from John Williams. Thursday sees the release of the usual weekly jobless claims numbers, further remarks from Fed Williams and also remarks from Fed Vice Chair Richard Clarida. Finally, the main event in the US on Friday is the release of February Core PCE inflation data.