Monday Morning QB - Market Observations:
- Stocks Rebound from the Previous Week’s Sell-Off
- Johnson & Johnson Is One Step Closer to Rolling Out a Single Shot Vaccine
- Friday’s Jobs Report Showed the U.S. Economy Added Only 49,000 Jobs in January.
- Biden Looks to Push Stimulus Through One Way or Another
- A Commerce Department Report Showed the U.S. Trade Deficit with China Shrunk by 10% in 2020
Monday Morning QB - Market Performance:
With new coronavirus cases in decline, a rising number of vaccines delivered per day, and government aid on the horizon, all major stock market indexes finished the week higher.
In fact, the large-cap S&P 500, NASDAQ Composite, and small-cap Russell 2000 indexes all reached record highs.
The Dow Jones Industrial Average soared over 1100 points finishing the week at 31,138, a gain of 3.9%. The technology-heavy NASDAQ surged 6% to 13,856.
By market cap, the large-cap S&P 500 added 4.6%, while the mid-cap S&P 400 and small-cap Russell 2000 rallied 5.8% and 7.7%, respectively.
Promising Vaccine News – Look Out Pfizer and Moderna, There’s a New Kid in Town
Vaccines and our ability to distribute them remain the gatekeeper to an accelerating economy, allowing people to get back to work.
Positive news came from all fronts last week. Daily new case reporting continues to retreat from the January peak. The pace of per day vaccinations surpassed 1.3 million. However, the biggest news came from Johnson and Johnson.
Vaccine number three could be online soon.
Johnson & Johnson asked for emergency use authorization for its Covid-19 vaccine candidate. An exciting upgrade with the J&J’s vaccine is it is a single-dose vaccine. Once and done sounds better than waiting in line for hours twice, plus it does not require super-cold refrigeration.
A fourth vaccine may be in the future as well. As reported by the Wall Street Journal, Novovax is working through the clinical trial process with good results in the U.K. and South Africa. Last Thursday, the company began the process for authorization of its Covid-19 vaccine in the U.S. also.
Companies are continuing to add tools to the pandemic fighting tool-belt even as the virus adds variants!
Stimulus News Helps Fuel Stock Market Gains
Friday, investors bet that a relatively weak jobs report would help guarantee a new stimulus bill.
Many investors are under the opinion that additional stimulus is the extra jolt needed to shrink economic risk, while buying time for the vaccine distribution to get really rolling – i.e., checks in hand while you wait for your shots!
The Labor Department reported that employers added only 49,000 jobs in January as the U.S. struggles to recover from a resurgence of coronavirus cases at the end of last year. However, the underwhelming jobs number did not dampen the buying mood on Wall Street.
One potential reason for the muted stock market reaction to the employment numbers is that the Jobs report is a lagging indicator or a rear-view mirror view of the economy. Many look to the weekly unemployment claims number as a better current barometer. The claims number has been improving over the last three weeks.
At least for last week, the stock market gravitated toward the future hope of job creation rather than focusing on the past indicators of poor economic performance
Do We Really Need More Stimulus?
A stimulus package moved a step closer from rhetoric to action as Democrats in both the House and Senate passed a budget resolution, allowing some of the stimulus plan to be voted into law by a simple majority.
Next step? Which parts of the stimulus relief package can pass and be implemented quickly.
Standing in the way of job creation, besides the obvious limited job opportunities from shutdown orders, is the inability for many to take on or return to a job.
Some people are simply too afraid of the vaccines' side effects and remain sheltered at home until more data is available. At the same time, others cannot leave home until their children are back to school full time. The stimulus may be their only lifeline.
All our situations are different. The line between the people who truly need another stimulus check and don’t isn’t easy to determine.
However, for the people and businesses who were unable to stretch their relief checks any longer, another round of money is needed to keep them going.
For those who are keeping track of government spending, consider this. Since the pandemic started, government relief packages under the Trump administration totaled around $4 trillion.
So, where is the line in the sand? No one knows for sure.
While the politics of more stimulus played out, last week’s stock market "hope" rally continued to revolve around “some” stimulus to help bridge the gap to economic recovery.
As business restrictions melt away with an ever-larger number of vaccinated Americans, the economy will continue to move toward full recovery. The expectation is the business freeze may melt away with the winter snow!
But given our history as we continue through the cycle of re-opening and re-shutting down, who can blame people for having doubts?
As Lawrence Peter Berra, “Yogi” once said, “It’s not over til it’s over.”
Earnings Season Continues to Show Business is Improving
Quietly, earnings season continues to churn out winning numbers, including expectations for future earnings growth, fueled by additional stimulus, combined with continued accommodating Federal Reserve easy money policies.
Overall, 59% of the S&P 500 companies have reported actual results for Q4 2020 to date. Of these companies, 81% have reported actual EPS (Earnings per Share) above estimates.
According to FactSet, more S&P 500 companies are beating EPS estimates for the fourth quarter than the average, and they are beating EPS estimates by a wider margin than average.
As a result, the S&P 500 index is reporting higher earnings for the fourth quarter today relative to the end of last week and relative to the end of the quarter.
The index is now reporting year-over-year growth in earnings in Q4 2020 for the first time since Q4 2019 (pre-pandemic). Analysts expect double-digit earnings growth for all four quarters of 2021, according to FactSet.
According to FactSet, in aggregate, companies are reporting earnings that are 15.2% above the estimates, which is also above the five-year average of 6.3%.
Looking at future quarters, analysts project double-digit earnings growth for all four quarters of 2021.
All this earnings data compiled by FactSet points to an improving economy driving business results higher for 2021.
Another solid week of earnings reports is in front of us as an additional 77 S&P 500 companies are scheduled to report results for the fourth quarter.
Let’s see if the stock market can keep the momentum rolling and your portfolios growing…
Have a great week!