Index Performance
US and International Equities
The major market indexes ended this week in the green with all averages solidly higher. The Russell 2000 Small Cap Index, which has been a bright spot in recent months, continues to lead all major markets with a more than 7% return for the week. Both the MSCI EAFE and Emerging Markets (EM) international markets had positive weeks as well.
January Stock Barometer
There’s an old saying on Wall Street that goes, “As goes January, so goes the year.” This implies a weak January could bring trouble over the rest of the year. The S&P 500 Index fell over 1% in January, opening the door to some potential weakness. In fact, when January has been lower, the final 11 months of the year have been higher 61% of the time, compared with gains 89% of the time when January is higher. To read more about this, please see the LPL Research blog titled As Goes January, So Goes The Year.
Q4 Earnings Tracking Above Prior-Year Levels
With roughly 60% of S&P 500 companies having reported fourth quarter results, earnings for the index are tracking to a nearly 2% year-over-year increase (source: FactSet). This is better than many market strategists expected when earnings season began, and consensus expectations saw a double-digit decline. “Growing earnings in the fourth quarter of 2020 is an impressive achievement by corporate America given that the year-ago quarter took place before the pandemic,” noted LPL Equity Strategist Jeffrey Buchbinder. “Wall Street is clearly impressed because consensus estimates for 2021 have been raised substantially as companies have reported results.” Financials, technology and materials have generated the most growth with each sector in the 15-17% range.
Energy Propels Higher
All major market sectors reversed course this week from last week’s selloff. The health care sector gained only a fraction this week, lagging the S&P 500 Index.
The energy sector, which started its rebound during the fourth quarter of last year and leads all sectors as 2021’s top performer, continued its winning ways returning over 8% this week. The global demand outlook has improved as the vaccine rollout has picked up speed recently and we get closer to a fully reopened economy.
Other major sector winners this week were financials, consumer discretionary, and communication services, with each sector returning over 5%.
Fixed Income Recap
Bonds, as represented by the Bloomberg Barclays US Aggregate, sold off this week as the 10-year Treasury yield moved higher. Longer-term maturity bonds sold off as investors continue to anticipate an economic recovery and price in stronger economic growth through higher interest rates.
Natural Gas and Oil Fuel More Weekly Gains
Commodities posted mixed results this week. As mentioned above, oil’s rally continued this week as West Texas Intermediate (WTI) crude oil reached over $56 a barrel. In addition, natural gas had another strong week, increasing over 12%. Silver reversed course and gave back some of its previous week’s gains to finish the week lower.
US and Global Economic Data Recap
Global Manufacturing Moves Forward
JPMorgan’s Global Manufacturing Purchasing Manager’s Index (PMI) reading for January came in at a solid 53.5 and stands above 2019 pre-pandemic levels. January’s reading marked the indicator’s seventh straight month in expansionary territory (above 50). While the global services sector has lost some momentum in Europe and Japan recently, the global services PMI reading of over 51. This seven straight months over 50 shows gradual, steady improvement.
The Institute for Supply Management (ISM) January PMI showed a slight decline from December, yet was still in expansion territory. Positive takeaways from the report include a strong New Orders Index low Customers’ Inventories Index—a positive sign for future production. In addition, the Backlog of Orders Index remains at strong levels.
January Jobs Report
The US employment situation improved marginally in January given 49,000 net new jobs were added as some state-level COVID-19 restrictions were lifted. Nevertheless, the number of jobs regained fell short of many analyst expectations. The official January unemployment rate was reported to be 6.3%. For more of LPL Research’s thoughts about the present employment landscape, please read US Jobs Market Seeking Shot in the Arm.
Jobless Claims Surpass Estimates for a Third Straight Week
Over 775,000 Americans filed for unemployment insurance last week according to the Department of Labor, below Bloomberg consensus forecasts of 830,000. In addition, continuing claims also beat estimates, falling to over 4.5 million versus consensus estimates of 4.7 million, signaling that job cuts are beginning to decline as COVID-19 cases in the US have dropped.
Next week, the following economic data is slated to be released:
On Tuesday, we get the January National Federation of Independent Business (NFIB) Small Business Index report. In addition the US Bureau of Labor December Job Opening and Labor Turnover Survey (JOLTS) will be published.
Wednesday is all about the January Consumer Price Index, labor statistics, along with January wholesale inventories and the Treasury Budget.
Thursday provides investors with another weekly initial unemployment claims report.
On Friday, we get February’s Michigan sentiment.
Moreover, the Q4 earnings season results continues with over 90 companies reporting earnings results and hosting conference calls.
IMPORTANT DISCLOSURES
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results. All market and index data comes from FactSet and MarketWatch.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
U.S. Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
For a list of descriptions of the indexes referenced in this publication, please visit our website at lplresearch.com/definitions.
This Research material was prepared by LPL Financial LLC.
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