Morning Notes — Near-Term Outlook

Reopening beneficiaries have been under pressure over the past two sessions, ostensibly based on rising case counts in pockets of the US. The market has been ‘looking through Covid’ for several months, so what’s different now? Maybe tax policy is what’s different following two days of reporting based on administration leaks.  It was subtle, but yesterday’s Powell/Yellen testimony resulted in accelerated profit taking after the Treasury Secretary was unable to shed more light on the administration’s plan to propose increased tax rates.  Markets apply a discount to uncertainty and investors seem incrementally more likely to book profits until there’s more clarity on tax policy.  Quarter-end pension fund rebalancing is another near-term dynamic that should weigh on equities and create increased demand for bonds until mid-next week.  This also implies that some of the recent stabilization in bond yields may also be temporary.