Senator Manchin, Build Back Better, and the Markets

Senator Manchin, Build Back Better, and the Markets

The Equity Futures are Down this Morning

The Equity futures are down this morning seemingly in response to news that Senator Manchin refuses to support President Biden's Build Back Better bill.

There could be other drivers like tax loss selling and continued Omicron fear, but it's almost never clear what drives the markets.

Negotiation is a Process that Takes Time

Regarding the news about Senator Manchin, here is a direct quote from Jen Psaki posted on WH.GOV

"On Tuesday of this week, Senator Manchin came to the White House and submitted—to the President, in person, directly—a written outline for a Build Back Better bill that was the same size and scope as the President’s framework, and covered many of the same priorities. While that framework was missing key priorities, we believed it could lead to a compromise acceptable to all. Senator Manchin promised to continue conversations in the days ahead, and to work with us to reach that common ground. If his comments on FOX and written statement indicate an end to that effort, they represent a sudden and inexplicable reversal in his position, and a breach of his commitments to the President and the Senator’s colleagues in the House and Senate.

Senator Manchin claims that this change of position is related to inflation, but the think tank he often cites on Build Back Better—the Penn Wharton Budget Institute—issued a report less than 48 hours ago that noted the Build Back Better Act will have virtually no impact on inflation in the short term, and, in the long run, the policies it includes will ease inflationary pressures. Many leading economists with whom Senator Manchin frequently consults also support Build Back Better."

Politicians are Positioning for the 2022 and 2024 Elections

Politicians are currently positioning to get maximum press exposure so they can enhance their chances at a 2022 and/or 2024 run in the elections.

They get your attention and the attention of the media by being controversial and even false.

Our Risk Metrics at Clear Capital Aren't "Ripe" - Yet

At Clear Capital Management we use a combination of technologies to evaluate the equity and fixed income risks in the markets.

While they are indicating some turbulence in the markets right now, they aren't signaling for us to hit the eject button.

The image below shows our most visual tool for gauging risk in the markets.

I have marked the sectors that do well during good economic times with green arrows and the sectors that do better during bad economic times with red arrows (Defensive sectors).

The rankings currently show the almost all the good economic times indicators in green while all the bad economic times indicators are red to yellow green at best.

If you look back at the first week in December when the S&P 500 was 2% lower than on Friday, and down 4.3% from its previous high, the defensive sectors were much more worrisome, but we chose not to act because the indicators weren't ripe then either.

As of Friday, the S&P 500 was down 2.3% from its recent high.

We Plan to Stay the Course - For Now

Until we see the markets signal an impending doom, we will hold our current risk on positioning.

We will continue to stay vigilant and apply our investment selection and risk management technologies so our clients can benefit no matter what the future brings.

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