The Optimistic View

By Alex Eule |  Monday, December 20 Build Back Buybacks. Surging Covid-19 case counts continued to dominate the conversation on Wall Street today. The S&P 500 slid for the third consecutive day, for a three-day loss of 3%. The index has fallen for five of the last six trading sessions, with the exception coming last Wednesday, when the Federal Reserve all but confirmed its more hawkish view. That up-day now looks like an ironic blip, given that the hawkish policies -- combined with another Covid wave -- seem to be the clear cause for the market's worries.  The other big news -- this weekend's surprising collapse of the Build Back Better plan -- was more of a mixed bag for markets. The bill's demise -- at least for now -- means less stimulus coming for the economy. That could weigh on growth in the coming year. But it also takes tax increases off the table, including a proposed corporate tax hike and a plan to tax corporate buybacks. Stock repurchases have helped juice markets for years now. On most days days, losing a potential buyback tax might have cheered investors. Instead, the three major indexes all finished down more than 1%.  Strategists spent the day trying to handicap the messages coming from Washington and what it means for the economy. Here's how my colleague Megan Cassella wrapped up the views:  The bill’s collapse is “probably, ultimately, an incremental benefit for corporate America, and a detriment to everyday Main Street America,” said Jack Ablin, chief investment officer at Cresset Capital Management. The larger question now, as the Omicron variant drives a fresh surge in coronavirus cases, is whether lawmakers might look to pass a short-term stimulus package to prop up the economy. But given the current spike in inflation, the strength of the economy, and continuing disagreement in Washington, the chances of Congress coming together to pass anything seems low, analysts say. “My sense is that the failure of Build Back Better represents the winding down of pandemic-era fiscal and monetary policy—that we’re now moving into a new set of conditions with a new set of constraints,” said Joe Brusuelas, chief economist at the economic-consulting firm RSM. Today, every sector in the S&P 500 finished in negative territory, with consumer staples performing the best, with a loss of only 0.7%. Just 79 stocks in the S&P 500 gained on the day, against 418 losers.

 

DJIA: -1.23% to 34,932.16 S&P 500: -1.14% to 4,568.02 Nasdaq: -1.24% to 14,980.94 The Hot Stock: Carnival +3.4% The Biggest Loser: Principal Financial Group -6.6% Best Sector: Consumer Staples -0.7% Worst Sector: Energy -2.5%