The major stock market indices finished mixed last week – with the Dow Jones Industrial Average eking out a gain of .11% to finish at 31,494.32, the Standard & Poor’s 500 Index declined .71% to 3,906.71, and the NASDAQ Composite dropped 1.57% to end the week’s trading at 13,874.46 – so we saw some degree of a general shift out of growth/momentum names into more cyclical stocks.
Weighing on stock prices last week was a bit of worry over rising interest rates, with the yield on the 10-year Treasury climbing to 1.34%, its highest level in nearly a year. We are seeing fears of higher rates and the potential for higher inflation starting to creep into the mind of the market. While rates are still in historically low ranges, the market is forward looking and many are anticipating higher rates are ahead of us.
What investors seem to like, on the other hand, is the expectation for additional government stimulus to help the economy and offset the impact from the pandemic. Treasury Secretary Janet Yellen said last week that “it’s very important to have a big package that addresses the pain this has caused.” Media reports indicate Congress and the White House are discussing a stimulus package in the amount of $1.9 trillion.
Looking at aggregate earnings results so far: For the fourth quarter of 2020, with 83% of the companies in the S&P 500 reporting actual results, 79% have reported a positive EPS (earnings per share) surprise, which is above the 5-year average of 74%, and 77% have reported a positive revenue surprise, which is above the 5-year average of 62%, according to FactSet.
Companies of note reporting in the week ahead include Medtronic, Home Depot, Macy’s, Square, Toll Brothers, Lowe’s Companies, Best Buy, NVIDIA, Dell Technologies, Domino’s Pizza, ETSY Inc, Moderna, Salesforce.Com, and Draftkings.
Also in the week ahead, we’ll be getting data on January New Home Sales, January Durable Orders, January Personal Income, and February Consumer Confidence. While these numbers will of course be important, the major issue the market will be watching is the pace and effectiveness of the vaccine dosing. The bullish case for the market is framed by a successful vaccination program and a strong economic recovery in the second half of this year. As always, call with any questions you may have or if you would like to set up a meeting with us.All the best – Southport Station Financial Management, LLC