Biden loves big tech. That was the market’s response to the inauguration of the 46th US president.
Ultimately, the ability of the stock market to hit new highs will depend on the maintenance of low Treasury yields. Treasury Secretary Janet Yellen is promising to ‘go big’ on fiscal policy. So far, the bond market is playing ball. The ten-year Treasury yield fell five basis points last week, despite the S&P 500 hitting new highs. The break-even rate for 10-year Treasuries has climbed 20 basis points this year (2.09%), but the indexed-linked yield has risen by only six basis points (-0.99%).
However, the policy backdrop has to be constructive. In this context, the push by President Biden for a $15 per hour minimum wage could backfire. Two executive orders were signed yesterday, to widen access to food stamps, and eligibility for unemployment benefits. But the new president has also started work on an executive order that would require federal contractors to pay a $15 per hour minimum wage, along with emergency paid leave.
According to the NFIB, small businesses are still cutting jobs, and price pressures have risen (see charts). Policies that cut into job creation will ultimately damage technology companies. Their success and rising valuations have been possible because new technology has created more jobs than it has destroyed.
Summary
• Higher costs loom with push on minimum wage
• All eyes on Yellen
• Fiscal reflation not without risks
