Why Janet Yellen Could Be the Biggest Gamechanger for Markets

Markets are anxiously watching developments surrounding the upcoming stimulus package which could set the tone for 2021.

As Covid-19 continues to ravage economies globally, all eyes remain on the United States with an incoming administration and arrival of familiar faces. This includes the former Fed Chair Janet Yellen, who steps back into the spotlight as the newest Treasury Secretary.

Yellen has championed a push for a massive stimulus and for President Biden to ‘act big’ on a Coronavirus relief package. This could have sizable consequences for markets, looming as the biggest catalyst for Q1 2021.

The US market had already been pricing in the passage of a stimulus package, though the terms of it are still unknown. Yellen has been adamant for a sweeping stimulus bill to help buffer the economic blow from Covid-19.

Her recent confirmation hearing in Washington corroborated this stance, which helped breath a sense of relief into markets. Indeed, she has embraced Biden’s $1.9 trillion stimulus package, asserting that a largely sized package would be most effective given myriad factors.

This includes the severity of the damage wrought by Covid-19, in tandem with other favorable factors such as historically low interest rates.

Unfortunately, millions of Americans are out of work or facing hardships from the virus despite the arrival of a vaccine. Yellen, not unlike others in the incoming administration, see a big stimulus package helping Americans now, despite saddling the country with costs down the road.

This stance was apparent during a recent Senate finance committee meeting, during which Yellen felt, “In the long run, I believe the benefits will far outweigh the costs, especially if we care about helping people who have been struggling for a very long time.”

Impact of stimulus bill on markets

Simply put, the passage of a bill of this magnitude could be a game changer for markets, with many indices in wait-and-see mode for weeks now.

There is bipartisan support for a bill, though the particulars remain convoluted as always during negotiations such as these.

However, Yellen has opted for several key tenets of the bill in particular. This includes targeted aid for small businesses and direct support for both local and state governments.

Yellen was also open to supporting the US Treasury in exploring longer-dated debt in order to take advantage of historically low borrowing costs.

These musings already led to major market moves, with many sectors capitalizing off the comments, sending stocks higher. Yellen is even expected to weigh in on the recent frenzy surrounding Gamestop, which could lead to greater regulations for retail stock trading.

Earnings season in focus

Still, there are a number of unknowns, namely as the US enters continues to finish out its Q4 season, has given a more accurate perspective on the true health of companies.

Several US bank stocks have already reported Q4 earnings with mixed results, foreshadowing the choppy nature of what has been a feast or famine market. Last week, tech stocks were largely stronger, painting a rosier picture moving forward.

Still, there remains to be seen how many sectors have performed, and any contraction could see additional focus in the form of the upcoming stimulus bill.

For now, markets will continuously await any new developments surrounding a stimulus package, with specifics easily capable of driving stocks higher in the near-term.

Additionally, the US dollar has quietly rallied in recent weeks and could further move on a more publicized stance from Yellen.

This article was submitted by CMS Prime.

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