Last week’s initial jobless claims jumped from 784,000 to 965,000, pointing to a continued slowdown in economic activity as a result of the pandemic. Economic activity ended 2020 on a downturn, and leading indicators point to the slowdown accelerating in January.
With the talk in Washington turning to the new administration’s $1.9 trillion stimulus plan, congressional approval will be very important to markets, which have been fueled since the start of the pandemic by fiscal and monetary stimulus. That trend will likely continue until economic activity picks up and talks turn to how to move forward economically after the pandemic.
Given so much liquidity and an increased interest in the equity markets, I expect stocks to continue to grind higher despite the challenging fundamental outlook. Bond yields should also push higher as concerns about deficits and large Treasury auctions keep investors cautious.
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