Markets, Economy

Weekly Kickstart (02/08/2021-02/12/2021)

2/8/21 8:00 AM

iStock-626627280.jpgStocks rebounded last week, as the S&P 500 rose by 4.65 percent to 3,886.83. That was yet another new all-time closing high and it left the benchmark index up 3.48 percent 2021-to-date. The markets had a handful of news headlines to digest during the past few trading sessions, including numerous economic data releases as well as several speeches from members of the Federal Open Market Committee. Few insights, though, were found in the latter because Fed officials basically reiterated their plans to keep highly accommodative monetary policies in place for the foreseeable future, and this is unlikely to change any time soon because a sustained uptick in inflation still appears to be a long ways off. A separate issue investors were monitoring last week and will increasingly focus on throughout the new year is corporate profits. Indeed, on several occasions last year we said that there could be a lot of upside earnings surprises due to lingering pessimism and general analyst caution stemming from the ongoing pandemic. This appears to have again been the case in the final three months of 2020 because among all the companies in the S&P 500 that have already released their Q4 profit results, 82 percent have reported earnings per share (EPS) figures that exceeded the consensus forecast, according to FactSet.

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If that number holds it would be the 2nd-highest percentage of S&P 500 companies reporting a positive EPS surprise since FactSet began tracking this metric in 2008, and in aggregate companies have been reporting earnings that are 13.6 percent above estimates, more than double the 5-year average. This pattern, though, could fade going forward or even reverse (downside surprises) as analysts start rushing to raise forecasts due to building optimism about the post-vaccine economic reopening. Moreover, analysts largely overcompensated to pandemic-related uncertainty in 2020 by slashing their earnings forecasts too aggressively, and we could see the opposite this year as analysts overestimate what growth will be as we exit the crisis. Of course all of this is probably more a sign of how bad analysts often are at predicting earnings rather than any kind of indication of where stock prices may be headed. More importantly, experienced 401(k) investors can fortunately look past these potential short-term swings in stock prices and instead remain focused on the long-term objective of preparing for retirement through years of routine, tax-advantaged plan contributions. As for those investors less comfortable navigating such an environment, consider using the latest market rally as another opportunity to review your positioning and make sure it is properly aligned with your risk tolerance, nearness to retirement, and other unique variables. These periodic reviews can help identify potential portfolio imbalances ahead of time rather than waiting until the market has already moved against you and your options feel much more limited. 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 mortgage applications ticked higher, construction spending firmed, small business job creation picked up, total employment rose, and the national rate of joblessness fell to the lowest level of the crisis. As for the negatives, gauges of business activity sent mixed signals, productivity in the fourth quarter of 2020 contracted by more than analysts expected, consumers’ credit demand cooled, corporate layoffs increased, and the number of Americans making first-time claims for unemployment benefits remained alarmingly high. This week the pace of economic data slows down but there are still a few important reports on consumers, small business, employment, and inflation scheduled to be released, along with a speech from Fed chair Jerome Powell on Wednesday.

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What To Watch:

Monday

  • Loretta Mester Speaks 12:00 PM ET

Tuesday

  • NFIB Small Business Optimism Index 6:00 AM ET
  • JOLTS 10:00 AM ET
  • James Bullard Speaks 12:00 PM ET
  • 3-Yr Note Auction 1:00 PM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET
  • CPI 8:30 AM ET
  • Atlanta Fed Business Inflation Expectations 10:00 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • 10-Yr Note Auction 1:00 PM ET
  • Jerome Powell Speaks 2:00 PM ET

Thursday

  • Jobless Claims 8:30 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • 20-Yr Bond Announcement 11:00 AM ET
  • 30-Yr TIPS Announcement 11:00 AM ET
  • 30-Yr Bond Auction 1:00 PM ET

Friday

  • Consumer Sentiment 10:00 AM ET
  • John Williams Speaks 10:00 AM ET
  • Baker Hughes Rig Count 1:00 PM ET
 

 

Sources: Econoday, FactSet, FRBSL

Post author: Charles Couch

Disclosures