Markets Shrug Off Debt Levels

Markets Shrug Off Debt Levels

February 02, 2021
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Daily Insights

The S&P 500 Index opens firmly higher to begin a busy week of earnings; over 100 S&P 500 companies set to report:

  • European markets stronger in midday trading
  • Asian markets surge overnight with Korea, Hong Kong and Taiwan each up over 2%
  • Silver up over 10% as retail trading frenzy turns its sight on metal ETFs

Big earnings upside, less than 40% of S&P 500 companies have reported.

  • S&P 500 earnings for the fourth quarter are tracking an impressive 9 percentage points ahead of expectations.
  • With less than 40% of S&P 500 companies’ results in, positive earnings growth for the quarter is a possibility.
  • Forward 12 months’ estimates have increased by an unusually strong 2.7% since January 1, 2021.

So goes January. The S&P 500 Index fell 1.1% in January, opening the door to the historically weak February. There’s an old saying on Wall Street that goes, “As goes January, goes the year.” Implying a weak January could bring trouble. In fact, when January has been lower, the final 11 months are higher only 61% of the time, versus 89% if higher in January. We will take a closer look at this later today on the LPL Research blog.

Technical update

The S&P 500 suffered its worst weekly loss since late October last week, falling 3.3% and closing at 3714. The move below support from the January 15 lows sets up 3540-3630 as the next range of tactical support. The percent of stocks in the S&P 500 above their 50-day moving averages fell to 42%, the lowest since late October, but still short of oversold.

Week ahead. This week’s events include:

  • Monday: Markit Purchasing Manager’s Index (PMI)(Jan.), construction spending (Dec.), and the Institute for Supply Management (ISM) Manufacturing Index.
  • Wednesday: Vehicle sales (Jan.), ADP Employment Survey (Jan.), ISM services and composite PMIs (Jan.), and Markit’s composite PMI (Jan.).
  • Thursday: Weekly initial unemployment claims, durable and factory orders (Dec.), and labor costs and productivity (Q4 2020).
  • Friday: Non-farm payrolls, hourly earnings, average workweek, and unemployment (Jan.), and trade balance (Dec.).
  • In addition, 110 S&P 500 companies will report fourth quarter 2020 earnings results.

COVID-19 news

The United States reported 118,000 new COVID-19 cases yesterday, the lowest daily increase in cases since the beginning of November (source: COVID Tracking Project).

  • 7-day average of new cases dips below 150,000 for the first time since November 15.
  • The US is now doing more than 1.5 million vaccinations per day as health experts push for greater implementation amid risks from new virus mutations (source: Johns Hopkins).

Positive Trends Send Strong Signals

This week’s Market Signals podcast discusses why positive COVID-19 news, solid small caps performance, high stock valuations, and more positive data trends are sending strong signals for 2021. Watch Market Signals: Positive Trends Send Strong Signals for 2021.

 

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