Markets, Economy

Weekly Kickstart (01/25/2021-01/29/2021)

1/25/21 8:00 AM

iStock-626627280.jpgStocks continued higher last week, as the S&P 500 rose by 1.94 percent to 3,841.47. That left the benchmark index up 2.27 percent 2021-to-date, and just 0.30 percent below the all-time closing high. In the prior Kickstart we explained how a few measures of investor sentiment have yet to signal extreme levels of complacency in the stock market, but this does not mean that confidence in general has not improved a lot recently. In fact, Wells Fargo’s Investor and Retirement Optimism Index jumped in the fourth quarter of 2020 to 42.0, a significant rebound after plummeting to just 4.0 in the first half of the year. Despite the sharp bounce the headline index still ended 2020 well below the pre-COVID average but this again supports our suggestion of a lack of full on irrational exuberance, unlike the near-record high of 138.0 printed by this same index in early 2020 just before the pandemic-related market crash occurred. To clarify none of this necessarily means that stocks cannot experience another drawdown in the near-term, especially following the recent and at times relentless run up in valuations. Instead this is simply an observation that although there are indeed some potentially concerning signs of market froth worth monitoring, there appears to also be a lot of people who remain skeptical of the rally.

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One possible reason why confidence has yet to fully capitulate to pre-pandemic levels is that memories of last March’s market tumult remain fresh in the minds of many investors, in turn keeping overall risk aversion relatively elevated. Further, even though roughly two-thirds of surveyed investors said that they feel “very” or “somewhat” confident that the stock market is a good way to build wealth for retirement, one in four respondents said that they are still keeping a greater than normal proportion of their money in cash. A third of surveyed investors even reported that they feel they still have too little cash on hand, compared to just 7 percent who believe they have too much. Although lump sum investing is likely to outperform in the long run these higher cash allocations can at times be a tactical tool, and at the very least this may encouragingly imply that fewer investors will panic out of equities should stocks experience another correction any time soon. Moreover, the long-term resiliency of the stock market has been repeatedly demonstrated but if the mere thought of another selloff is causing you to lose sleep at night then your exposure to stocks may be too high for your risk tolerance, nearness to retirement, and other unique variables. Regular reviews of your positioning can help identify these potential problems ahead of time so that you are better prepared for the next drawdown, in turn making it easier to benefit from the “best days” and avoid panicking at a potentially inopportune time. Additional assistance is available by consulting with a professional financial advisor and as always, we are here to help with any questions you may have.

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To recap a few of the things we learned about the economy last (holiday-shortened) week, the positives included that mortgage applications rose, existing home sales exceeded forecasts, housing starts jumped, building authorizations increased, and business activity in the mid-Atlantic region of the country improved. As for the negatives, homebuilder optimism cooled, and the number of Americans making first-time claims for unemployment benefits remained alarmingly high. This week the pace of economic data picks up with several important reports on manufacturing, housing, consumers, and inflation scheduled to be released, along with the first official estimate of Q4 2020 U.S. gross domestic product growth due out on Thursday. The Federal Reserve will also deliver its first monetary policy announcement of 2021 on Wednesday.

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What To Watch:

Monday

  • Dallas Fed Manufacturing Survey 10:30 AM ET
  • 2-Yr Note Auction 1:00 PM ET

Tuesday

  • FOMC Meeting Begins
  • Case-Shiller Home Price Index 9:00 AM ET
  • FHFA House Price Index 9:00 AM ET
  • Consumer Confidence 10:00 AM ET
  • Richmond Fed Manufacturing Index 10:00 AM ET
  • 5-Yr Note Auction 1:00 PM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET
  • Durable Goods Orders 8:30 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • Survey of Business Uncertainty 11:00 AM ET
  • 2-Yr FRN Note Auction 11:30 AM ET
  • FOMC Announcement 2:00 PM ET
  • Fed Chair Press Conference 2:30 PM ET

Thursday

  • GDP 8:30 AM ET
  • International Trade in Goods (Advance) 8:30 AM ET
  • Jobless Claims 8:30 AM ET
  • New Home Sales 10:00 AM ET
  • Leading Indicators 10:00 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • Kansas City Fed Manufacturing Index 11:00 AM ET
  • 7-Yr Note Auction 1:00 PM ET
  • Fed Balance Sheet 4:30 PM ET

Friday

  • 10-Yr TIPS Settlement
  • Employment Cost Index 8:30 AM ET
  • Personal Income and Outlays 8:30 AM ET
  • Chicago PMI 9:45 AM ET
  • Consumer Sentiment 10:00 AM ET
  • Pending Home Sales Index 10:00 AM ET
  • Baker Hughes Rig Count 1:00 PM ET
 

 

Sources: Econoday, Wells Fargo, Gallup, J.P. Morgan, FRBSL

Post author: Charles Couch

Disclosures