Medicare Agent News: Profits Are Back

Monday, February 8, 2021

Profits Are Back

By Alex Eule | Monday, February 8

Record Keeping. The major stock indexes all closed the day at records for the first time since Jan. 20, Inauguration Day. Back then -- as in a few weeks ago -- investors were feeling confident about renewed chances for a major stimulus bill.

Today, investors were on the stimulus bandwagon again after Treasury Secretary Janet Yellen talked up the Biden administration's $1.9 trillion relief package. Over the weekend, Yellen said that the stimulus package could return the labor market to its pre-pandemic peak by next year. On Friday, the Democrat-controlled Congress took key procedural steps toward passing the law, making the massive stimulus package increasingly likely.

Corporate America is doing its part to boost stocks, as well, with earnings season continuing to impress. (More on that below).

If there's anything to worry about on Wall Street, it's the risk of going too far, too fast. Between stimulus, improved earnings, and higher spending that comes with a potential economic re-opening, investors are starting to talk more about inflation. At one point today, the yield on the 30-year Treasury crossed 2% for the first time since the pandemic. The yield had briefly fallen below 1% at the peak of Covid worries in March.

Alexandra Scaggs notes that yields on long-term Treasuries have been on the rise since positive data about vaccines arrived. While bond yields ultimately fell Monday, the long-term trend looks to be higher. Alex writes:

But the expectation remains for yields to keep climbing over coming weeks and months. And a key question is how high yields need to be to dent stock-market returns.Several Wall Street strategists have tackled that puzzle in recent notes.

Almost 70% of S&P 500 companies pay a higher yield than the 10-year note, wrote a team led by equity strategist Savita Subramanian in a recent note. That proportion would fall to 40% if companies keep their payouts at current levels and the Treasury yield rises to 1.75% by the end of this year, they found. [The 10-year currently yields 1.16%.]

That could start undermining the attractiveness of stocks as an income play; today the overall dividend yield on the S&P 500 is 1.5%, higher than the 10-year Treasury payout. That has helped offset concerns about valuations that are higher than historical averages.

So when should we worry about stocks? Not yet, Alex notes:

Goldman strategists wrote that a quick jump in Treasury yields would be dangerous for the stock market as a whole. But the bank estimated that real damage would require yields to rise 36 basis points in the span of a month. That looks unlikely, considering the fact that it took yields about three months to climb that far during the latest attention-grabbing move higher.

Meanwhile, if you're missing all that speculation from last month, there are still corners of the market making huge moves. Bitcoin jumped nearly 20% in the last 24 hours, boosted by Tesla's disclosure that it had invested $1.5 billion in the cryptocurrency. The company said in a filing:

In January 2021, we updated our investment policy to provide us with more flexibility to further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity...we may invest a portion of such cash in certain alternative reserve assets including digital assets, gold bullion, gold exchange-traded funds and other assets as specified in the future.

Al Root has more on the seemingly predictable intersection of Tesla and Bitcoin.