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As more vaccines become available, the economy— helped by additional fiscal spending— should also heal at a faster pace, says Prudential’s chief market strategist.

January 12, 2021

Highlights

  • Market participants embraced stimulus expectations from the Biden administration that are now virtually assured by a Democratic Senate.
  • One of the central questions for markets is whether inflationary pressures will build forcefully enough to have the Federal Reserve telegraph an earlier withdrawal from its “lower for longer” mantra.
  • Above all else, vanquishing the virus is the basis for all things normal.

With COVID-19-related headlines around the world becoming increasingly more dire and the pace of the global economic recovery potentially jeopardized, coupled with concerns over the Jan. 5 Senate elections in Georgia, the first trading day of 2021 was greeted with heavy selling. It wasn’t expected to be this way, as the so-called Santa Claus rally is statistically supposed to be in effect during the last couple of trading days in December and the first two trading days in January. But all was forgotten as market participants embraced stimulus expectations from the Biden administration that are now virtually assured by a Democratic Senate. Not even the events surrounding the Jan. 6 congressional count of the Electoral College votes could deter the market’s focus on the beneficiaries of the Democratic “blue sweep.”

The rollout of the vaccines in the U.S. has been plagued by problems, and inoculation efforts are behind schedule. The Dec. 27 $900 billion Congressional relief package includes $8 billion earmarked for the vaccine rollout, which could help to set up local vaccine sites. Dr. Anthony Fauci, who has been named as chief medical advisor to the incoming president, said that “Any time you start a big program, there’s always glitches. I think the glitches have been worked out.” He added that President-elect Joe Biden’s initial 100-day plan calling for 100 million vaccinations is “a very realistic, important, achievable goal.”

In addition to the Pfizer and Moderna vaccines currently being distributed in the U.S., AstraZeneca’s vaccine could be ready to seek emergency use authorization (EUA) from the Federal Drug Administration (FDA) in April. Johnson & Johnson is expected to release interim data on the safety and efficacy of its vaccine by early February, followed by an application for EUA approval.

For the market, the combination of fiscal stimulus spending, dovish monetary policy, and a successful program of vaccinations of at least 70% of the U.S. population in order to reach herd immunity equates to an economy that will look increasingly normal. To be sure, concerns over virus variants and the efficacy of current vaccines could thwart the path to recovery.

Read Quincy Krosby’s full January 2021 commentary, "Finally–A New Year."

References include the following: Associated Press, Barron’s, Bloomberg, CNBC, CNN, Cornerstone Macro Research, Evercore ISI, Federal Reserve, The Financial Times, Fortune, Goldman Sachs, Morgan Stanley, The New York Times, Politico, Real Money – TheStreet, Renaissance Macro, and The Wall Street Journal.

The views and opinions are those of the author at the time of publication and are subject to change at any time due to market or economic conditions. This document has been prepared solely for informational purposes. This is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The Prudential Insurance Company of America, Newark, NJ, and its affiliates. Prudential and its distributors and representatives do not provide tax, accounting, or legal advice. Please consult your own attorney or accountant. In providing these materials, the issuing companies and distributor listed above are not acting as your fiduciary as defined by any applicable laws and regulations.

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Media Contact(s)

Yue Parsons

573-355-4001

yue.parsons@prudential.com