Markets, Economy

Weekly Kickstart (02/01/2021-02/05/2021)

2/1/21 8:00 AM

iStock-626627280.jpgStocks were under pressure last week, as the S&P 500 fell by 3.31 percent to 3,714.24. That left the benchmark index down 1.11 percent 2021-to-date and 3.66 percent below the all-time closing high. Most of the damage was done on Wednesday and Friday when the S&P 500 experienced its largest declines since October. However, given how substantial the broad rally in the markets has been in recent months any pullback has been and remains unsurprising. There were many potential excuses for last weeks selloff, including hedge funds and other large market participants forced to sell their winners in order to cover shorts, as well as many traders simply trying to lock in profits ahead of February which has historically been a weaker month for equities. Expanding on the latter, since 1928 the S&P 500 has experienced an average return of -0.11 percent in February (+0.27 percent median). It is worth noting, though, that this small average loss follows the best 3-month period for stocks (November through January), and that historically the February weakness has been short-lived as the gains tend to pick back up in March and April, enough so that these next three months still managed to generate an average return of 1.55 percent during the past 90+ years.

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However, a perhaps more important seasonality statistic to point out is that February has historically been one of the more volatile months of the year. This matters because even if stocks manage to end February with a month-over-month gain it could have still been a bumpy ride for the markets in the process. As a result it is worth remembering how time in the market can often outperform trying to time the market. Moreover, we will again reference the J.P. Morgan analysis which calculated that from January 2000 to the end of 2019, 24 of the 25 worst trading days in the S&P 500 occurred within a single month of the 25 best trading days, and 6 of the 10 best days occurred within two weeks of the 10 worst days. Of course benefiting from the “best days” typically implies staying invested, which requires remaining calm during periods of market tumult. This is not always easy, and there are indeed more potential volatility catalysts left for the markets to overcome in the near-term. Any regular investors uncomfortable navigating this environment should consider consulting with a professional financial advisor to make sure their positioning is properly aligned with their risk tolerance, nearness to retirement, and other unique variables. 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 week, the positives included that home values rose, GDP growth continued to normalize, Americans’ incomes rebounded, household inflation pressures remained muted, demand for U.S.-made durable goods increased, and a key gauge of business investment improved. As for the negatives, mortgage applications fell, pending home sales declined, new home sales disappointed forecasts, regional manufacturing activity softened, employment costs picked up, gauges of consumer sentiment sent mixed signals, and the number of Americans making first-time claims for unemployment benefits remained alarmingly high. This week the pace of economic data stays elevated with several important reports on factory output, construction spending, service sector activity, consumers, productivity, and employment scheduled to be released. That includes the release of the January job report from the Labor Department on Friday as well as a handful of speeches from Federal Reserve officials scattered throughout the week.

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What To Watch:

Monday

  • 2-Yr Note Settlement
  • 5-Yr Note Settlement
  • 7-Yr Note Settlement
  • 20-Yr Bond Settlement
  • PMI Manufacturing Final 9:45 AM ET
  • ISM Manufacturing Index 10:00 AM ET
  • Construction Spending 10:00 AM ET
  • Raphael Bostic Speaks 2:00 PM ET
  • Eric Rosengren Speaks 3:10 PM ET

Tuesday

  • Motor Vehicle Sales
  • John Williams Speaks 2:00 PM ET
  • Loretta Mester Speaks 2:00 PM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET
  • ADP Employment Report 8:15 AM ET
  • Treasury Refunding Announcement 8:30 AM ET
  • PMI Composite Final 9:45 AM ET
  • ISM Services Index 10:00 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • 3-Yr Note Announcement 11:00 AM ET
  • 10-Yr Note Announcement 11:00 AM ET
  • 30-Yr Bond Announcement 11:00 AM ET
  • James Bullard Speaks 1:00 PM ET
  • Patrick Harker Speaks 2:00 PM ET
  • Loretta Mester Speaks 5:00 PM ET
  • Charles Evans Speaks 5:00 PM ET
  • Robert Kaplan Speaks 6:05 PM ET

Thursday

  • Challenger Job-Cut Report 7:30 AM ET
  • Jobless Claims 8:30 AM ET
  • Productivity and Costs 8:30 AM ET
  • Factory Orders 10:00 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • Mary Daly Speaks 2:00 PM ET
  • Fed Balance Sheet 4:30 PM ET

Friday

  • Employment Situation 8:30 AM ET
  • International Trade in Goods and Services 8:30 AM ET
  • Baker Hughes Rig Count 1:00 PM ET
  • Consumer Credit 3:00 PM ET
 

 

Sources: Econoday, BAML, JPM, FRBSL

Post author: Charles Couch

Disclosures