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Markets Hit New Highs as Earnings Seasons Kicks into Gear

January 25, 2021
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Monday Morning QB - Market Observations:

  • Big Banks Report Earnings and Most Beat Expectations
  • 120 S&P 500 Stocks Report Earnings this Week
  • Biden Officially Takes the Presidential Reins
  • Janet Yellen Confirmed as Treasury Secretary…Calls for More Stimulus
  • Covid-19 Deaths Surpass 400,000 • CDC Reports Per Day Vaccinations Reach One Million per Day…Vaccinations Hold the Key to Full Recovery
  • Politics Owned the News Cycle but Mostly Just Noise…Unity Speeches Followed by Same Old Partisan Bickering

Monday Morning QB - Market Performance:

The major indexes moved higher for the week.

The Dow Jones Industrial Average rose 183 points, closing at 30,997 - a gain of 0.6%. The technology-heavy NASDAQ Composite surged 4.2% to 13,543.

By market cap, the large cap S&P 500 rose 1.9%, while the mid cap S&P 400 and small cap Russell 2000 added 1.6% and 2.1%, respectively.

Earnings Guidance on the Rise

Earnings season officially kicked off two weeks ago with a few of our significant banks reporting. Big banks' earnings news dominated the earnings headlines last week, with most big banks exceeding expectations.

Interestingly, the "real" news came from companies issuing guidance ahead of their earnings report.

According to FactSet, 56 of the S&P 500 companies have issued positive guidance regarding their upcoming earnings report. This is the most since FactSet started tracking the data in 2006. The previous high was 51.

According to the FactSet data, information technology leads the way with 29 companies out of the 56 total. The five-year average for the Tech sector is 16 companies raising guidance. Industrials were next with a total of 9 companies.

Big Week of Earnings to Digest

This Week 120 S&P 500 companies are set to report earnings.

The collective reports will go a long way in determining if some of the current stock market themes continue.

From a macro level, companies continue to recover faster than expected from the pandemic. Hopefully, the earnings increases continue to translate to a higher stock market and solid GDP growth throughout 2021.

According to many economic reports on the American consumer state, the savings rate is still higher than usual.

This means those employed throughout the pandemic are saving money, and pent-up demand could translate to investing in stocks pushing the market higher, future retail purchases or travel and leisure plans being enacted. Any of those (or a combination) will help the stock market to continue to climb.

For the folks who continue to struggle financially from the pandemic, hope is likely coming.

Since the summer, partisan bickering regarding the next stimulus package continues to be tone deaf to the most affected.

Yes, our government has passed several stimulus bills to help the suffering, but as long as the pandemic exists, so do the financial problems of the unemployed. The next relief bill will pass in some form, giving much-needed relief- relief that may translate to a short term boost to both GDP and corporate earnings.

From a micro level, the tech sector's reported death as the leading sector of the stock market may be premature. Last week, tech stocks had a good week, in some part due to the positive news regarding their upcoming earnings reports.

Netflix was up 13.49% last week, outperforming on the number of new subscribers for the month. Technology will continue to be in focus this week as we wait for the earnings reports from Apple, Facebook, and Microsoft.

We will continue to keep you posted. To us, earnings will always be one of the primary metrics to judge the stock market and our economy. So, we will watch the reports both collectively and individually and continue to look past our politics as impeachment will dominate the political noise.

Have a great week, everyone!

(sources: all index return data from Yahoo Finance; Reuters, Barron's, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, www.stocksandnews.com, www.chaikinanalytics.com Chaikin Analytics, www.marketwatch.com, www.BBC.com, www.361capital.com, www.pensionpartners.com, www.cnbc.com, www.FactSet.com, W E Sherman & Co, LLC)
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