Good Tuesday AM,

I hope the New Year has started out great.

Markets have been in a holding pattern through the holidays and into the first few days of the New Year. Equity markets teetering back and forth, plus and minus. Bonds, pretty much the same. The economic data is weak and when we review payroll numbers later this week, I suspect they will show substantial weakness, however those will not likely be the focus. Right now, eyes are fixed on the Georgia Senate elections. The balance of power in Washington is impacted by the winners. If one of the incumbent Republican Senators wins reelection, Republicans retain the majority in the Senate. If the Democrats win both seats, the Senate is split 50/50 with VP Harris being the deciding vote when needed. Markets are certainly sensitive to government spending, taxes, etc. A Democrat controlled Senate does not bode well for rates as inflation expectations would increase and bond holders do not like having a fixed return when the value of money is eroding. The next few days will be interesting. Bonds are already playing defense with the 10-yr at .96 and mortgage bonds off about .125%.

On a positive note (which I expect will continue), Mega data aggregator CoreLogic shared its November U.S. Home Price Index. It showed largest annual appreciation since March 2014.The report said nationally home prices increased by 8.2% in November from a year ago. On a month-over-month basis, home prices increased by 1.1% from October.

And along the lines of whether rates will stay low, Chicago Federal Reserve President Charles Evans on Monday had a message for markets: vaccines may bring the coronavirus pandemic under control this year, but the U.S. central bank is nowhere close to ending its super-easy monetary policy. The Fed is setting an expectation of several more years of low rates. That of course does not mean they will stay as low as they are now, but they will be incredibly accommodative through the next few years.

Please remain safe and healthy, make today great!