MARKETS ADD TO LAST WEEK’S HUGE GAINS AS MOST COMPANIES SURPASS
EARNINGS EXPECTATIONS AND OIL CONTINUES TO MOVE UP
• The week started off as a continuation of last
week’s spectacular run, then lost steam for the
remaining 4 days as the major indices moved
mostly sideways, but still hit new intraday highs
• The smaller-cap Russell 2000 led the way with a
2.5% gain, followed by the 1.7% increase for
NASDAQ, the 1.2% gain for the S&P 500 and the 1%
move for the DJIA
• The market seemed cautiously optimistic as
inflation appears muted (for now), optimism that
another huge stimulus package will be passed by
Congress is high and better than expected
corporate earnings reports from last quarter were
announced
• Of the 11 S&P sectors, 8 were positive, with Energy
jumping 4.3% and Utilities bringing up the rear with
a loss of 1.8%
• Cryptocurrencies were in the news again, as Tesla
announced that it had purchased $1.5 billion of
bitcoin and that it would accept bitcoins as
payment for its cars
• Dogecoin, another unusual crypto given its history,
also made some huge moves that seemed to fit the
definition of asset euphoria
• The 10-year Treasury yield increased four basis
points to 1.21%
• WTI Crude moved up on the week and ended just
shy of $60/barrel
• The Volatility Index trended in a tight range most of
the week before declining to below 20 by end of
the day Friday
A Solid Week for Stocks
Stocks added to last week’s big gains, led again by the smallercap names as the major indices recorded a second week of
gains and fresh record highs, pushed along by positive
corporate earnings and more distribution of COVID vaccines.
Rising oil prices helped the Energy sector outperform, as WTI
Crude came close to $60/barrel, a level not seen since the end
of 2019. The smaller-cap and mid-cap names widened their
2021 lead over the large-cap names and value shares
outperformed on the week.
The week saw 82 companies from the S&P 500 report 4th
quarter earnings and generally speaking, earnings came in
better than expected with about 4 out of 5 beating estimates.
Wall Street viewed this week’s jobless claims as indicative of
the need for another stimulus package. Although claims were
down 19,000 in the most recent data, the total of 793,000
claims is uncomfortably high.
Companies Beating Earnings Estimates
As of Friday, there are more S&P 500 companies beating
earnings estimates for the 4th quarter of 2020 relative to
historical averages – and they are beating estimates by a wider
margin too. Because of this, research firm FactSet is reporting
year-over-year growth in earnings in Q4 2020 and predicting
double-digit earnings growth for all four quarters of 2021.
“Overall, 74% of the companies in the S&P 500 have reported
actual results for Q4 2020 to date. Of these companies, 80%
have reported actual EPS above estimates, which is above the
five-year average of 74%. If 80% is the final percentage for the
quarter, it will mark for the third-highest percentage of S&P
500 companies reporting a positive EPS surprise since FactSet
began tracking this metric in 2008.
In aggregate, companies are reporting earnings that are 15.1%
above the estimates, which is also above the five-year average
of 6.3%. If 15.1% is the final percentage for the quarter, it will
mark the third-largest earnings surprise percentage reported
by the index since FactSet began tracking this metric in 2008.”
CPI Increases Modestly
Mostly in line with expectations, consumer prices rose 0.3% in
January, up from 0.2% in December, leaving the annual rate
unchanged at 1.4% which is a little bit below consensus
expectations of 1.5%. While one month doesn’t constitute a
trend, it should be noted that the monthly gain is the largest
since August 2020, when prices increased 0.4%.
From the Bureau of Labor Statistics release:
• The gasoline index continued to increase, rising 7.4
percent in January and accounting for most of the
seasonally adjusted increase in the all items index.
• Although the indexes for electricity and natural gas
declined, the energy index rose 3.5 percent over the
month.
• The food index rose slightly in January, increasing 0.1
percent as an advance in the index for food away
from home more than offset a decline in the index for
food at home.
Small Businesses Less Optimistic
The National Federation of Independent Businesses collects
data from small and independent businesses and publishes
their Small Business Economic Trends data on the second
Tuesday of each month. The Index is a composite of 10
components based on expectations for: employment, capital
outlays, inventories, the economy, sales, inventory, job
openings, credit, growth and earnings.
“The NFIB Optimism Index declined in January to 95.0, down
0.9 from December and three points below the 47-year
average of 98. Owners expecting better business conditions
over the next six months declined seven points to a net
negative 23%, the lowest level since November 2013. The net
percent of owners expecting better business conditions has
fallen 55 points over the past four months.
Small Businesses Looking to Hire
As reported in the NFIB monthly jobs report, small business
owners are looking to hire, and reported a very strong two
month trend in hiring (December and January).
Firms increased employment by 0.36 workers per firm on
average over the past few months, up from 0.30 in
December, a good 2-month performance. However, the
hiring remains uneven geographically and by industry.
Fifty-one percent of owners reported hiring or trying to hire
in January, unchanged from December. Owners have plans to
fill open positions, with a seasonally adjusted net 17%
planning to create new jobs in the next three months.