The major stock market averages finished modestly lower last week. The Dow Jones Industrial Average dipped .5% to 32,627.97, the NASDAQ Composite lost .8% to 13,215.24 (posting its fourth negative week out of the last five), and the Standard & Poor’s 500 Index lost .8%, ending the trading week at 3,913.10. Notable points during the trading week included the Dow closing above 33,000 for the first time ever on Wednesday, along with the NASDAQ dropping 3% on Thursday.
Drivers behind the market action included a dovish (accommodative) Federal Reserve policy meeting along with rising bond yields. Fed Chair Powell presented a very accommodative message last week, saying the Fed would support the economy “for as long as it takes.” Additionally, the Fed expressed their willingness to let inflation overshoot their target in order to prioritize growth and material improvement in employment, before changing their monetary policy. With the easy stance by the Fed, many market participants grew more worried about inflation, and the 10-year Treasury closed the week at 1.73%, hovering near a 14-month high. Bottom line for the week – yields moved higher while stock prices moved lower.
Looking at some specific stocks that were big movers on news last week: Visa shares dropped over 6% after reports the Department of Justice is investigating the company’s debit card business for possible anticompetitive practices; Nike shares fell almost 4% after the company missed street estimates for revenues, although it beat on earnings; FedEx gained over 6% after it reported both earnings and revenues that easily topped consensus estimates. Speaking of a couple earnings reports, believe it or not, we are almost into another earnings season!
For the first quarter of 2021, the estimated earnings growth rate for the S&P 500 is 22.6% according to data from FactSet – additionally, more companies have issued positive Earnings Per Share guidance for the first quarter of 2021 than average – the percentage of companies issuing positive EPS guidance is 64%, which is above the 5-year average of 33%. Analysts are expecting double-digit earnings growth for all four quarters of 2021. Remember, earnings results are viewed in comparison to what was expected by the market, so it is important to have a handle on those expectations and sentiment going into an earnings season.
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All the best – Southport Station Financial Management, LLC