The stock market started off 2021 on a positive note last week. Despite a disappointing December Jobs Report showing the U.S. economy lost 140,000 jobs last month (versus expectations for a gain of 50,000) along with a jump in COVID-19 cases/hospitalizations/deaths – all three major stock market indices gained ground and finished the first trading week of the new year at all-time highs.
The Dow Jones Industrial Average rose 1.6% to 31,098 – the NASDAQ Composite gained 2.4% to 13,202 – and the Standard & Poor’s 500 Index added 1.8% to 3,825. One reason behind the gains is optimism surrounding the effectiveness of vaccines, with Pfizer saying a study showed their vaccine works against new strains of the virus. Another major reason for the market advance is hopes for more financial aid/stimulus out of Washington, with President-elect Biden saying a new coronavirus relief package will be “in the trillions of dollars”.
Along with the path of the pandemic and economic stimulus which will remain focal points for investors in the week ahead, we’ll also roll into another earnings season. Fourth-quarter 2020 earnings reporting season kicks off this week with major banks such as JPMorgan Chase, Wells Fargo, PNC Financial, and Citigroup scheduled to announce their results this Friday.
Looking at overall market expectations, earnings for companies in the Standard & Poor’s 500 Index are expected to decline 8.8 percent for the 4th quarter of 2020. If 8.8% is the actual decline for the quarter, it will mark the third-largest (year-over-year) decline in earnings reported by the index since the third-quarter of 2009, according to FactSet.
Remember, the market looks forward and the earnings drop from last quarter is already behind us. The market rally, supported by unprecedented monetary and fiscal policies, has been based on investors picturing a strong post-pandemic recovery. The outlook for that anticipated recovery will be more important than actual earnings numbers from last quarter! As always, please don’t hesitate to contact us with any questions you may have, or if you would like to set up a meeting.
All the best – Southport Station Financial Management, LLC