The stock market will likely continue to be lifted by expectations of a speedup in economic growth stemming from increased vaccinations and new fiscal stimulus. Biden's comment that a $15 minimum wage looks like it won't be included in a reconciliation stimulus bill is a market positive for the near term. The Trump impeachment trial, which begins this week, should be background noise.
While the final stimulus package appears to be still in flux, two parts that should be in the final version are the one-time payment to low-income people and assistance to state & local governments. Their bang for the buck may disappoint, however. Increased vaccinations may have the bigger positive impact on economic growth.
While low-income people tend to spend all their income, theory says that one-time payments tend to be saved (or used to pay down debt). Theory seemed to hold last year when much of the one-time stimulus payments was saved or used to pay down debt. Even if the payments are spent, a good share of the spending will be siphoned away from the economy through imports. Moreover, the recent rise in oil prices is a partial offset to an increase in stimulus payments in terms of consumer purchasing power (although it should help boost domestic oil production).
As for the state & local government assistance, much of it aims to keep current operations going. So, the economic impact will be to prevent a drag rather than add to growth.
This week has a light calendar for US economic data. The most important is the January CPI. Consensus looks for +0.4% m/m Total and +0.2% Core. There is always the risk for the January CPI to be boosted by start-of-year price hikes, although seasonal factors should try to offset them. The weaker dollar also could lift import prices that feed into the CPI. Consensus seems to be looking for price hikes -- at least more than occurred last year, as it expects the y/y for Core to rise to 1.6% from 1.5%. In contrast, the pandemic could weigh on pricing of such items as rents. All told, the risks seem to be balanced. Note that even with a 0.3% Core trend, it will take several years to unwind the shortfall relative to the Fed's 2% target that has built up over the years.
The other important data will be the weekly Unemployment Claims data, particularly if they confirm last week's strength. Last week's data moved closer to signaling the end of the impact of the virus-induced shutdowns that began in December. The 68k w/w drop in Initial Claims to 779k put them at a level last seen in October-November (799k and 740k average, respectively). The week's decline also was notable because it ran counter to the possibility of a post-holiday rebound.
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