Inflation Coming In 2021

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The Democrats won both Senate seats which means the Senate is tied 50-50, with the Dem VP being the tying vote. No one exactly knows what this means for legislation in the next two years, but the most obvious thing coming is another stimulus that’s bigger than the last one because many Republicans supported it. It was only stopped because Mitch McConnell was the Senate majority leader (it’s now Chuck Schumer).

The less certain aspect is the prospect of higher tax rates. If just one Democrat doesn’t agree with a tax hike, it won’t come. We saw the GOP fail to pass healthcare reform a few years ago when it had a slim majority. The Democrats will be hard-pressed to get a progressive agenda passed.

The election caused tech stocks to fall and the 10-year yield to get above 1%. That’s bullish for banks and bearish for growth stocks. The 10-year yield would have gotten above 1% with the economy reopening anyway, but the intermediate-term ceiling is now higher.

As of January 5, 5.05 million vaccine doses have been given out in America. This has done next to nothing to prevent new records highs in hospitalizations. We should see some improvement in the numbers in February if the vaccine rollout accelerates.

Economy Overheating?

We’re in a wild situation where parts of the economy are in a devastating recession (leisure and hospitality), but the manufacturing sector is very strong on a rate of change basis. Yearly manufacturing growth will likely be in the negatives in the December industrial production report, but the December ISM PMI was very good.

The manufacturing PMI rose from 57.5 to 60.7 which is equal to 5.2% annualized GDP growth. The new orders index rose from 65.1 to 67.9. The manufacturing sector isn’t overheating. We won’t even get positive yearly growth until the weak comps in the spring are lapped. However, the prices paid index is running very hot. It rose 12.2 points to 77.6. It’s great to be a commodity producer. That’s not something you have heard for a while.

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StockHound 1 week ago Member's comment

What about $BGMD?