Month: January 2021

Over a short trading week, the Dow Jones Industrial Average increased 0.59 percent, the S&P 500 1.94 percent and 4.19 percent for the Nasdaq. The Russell 2000 Index rose 2.15 percent. While the week’s early stock gains were driven by the communication sector’s leading performance along with initial runs for tech stocks.

Following the positive momentum for stocks generated by better-than-expected economic data out on Friday. The Nasdaq closed up 0.09 percent for the day after posting a record close of 13,543. The Russell 2000 Index was also up for the day, with a gain of 1.28 percent, a record high of 2,168. The S&P 500 closed 0.3 percent down on Friday, while the Dow dropped 0.57 percent.

Strong earnings news powered stocks, but most of the buying was concentrated in technology-related shares. SPDR Communication Services (XLC) rose 5.10 percent, SPDR Technology (XLK) climbed 3.48 percent this week and SPDR Consumer Discretionary added 2.12 percent.

Rail operator Kansas City Southern (KSU) missed earnings estimates by 1 percent. Protests in Mexico delayed shipments from that country, while changes in energy charge and foreign currency also weighed on results. Earnings were up 3.9 percent from last year though. Union Pacific (UNP) was stronger with fourth quarter earnings up 16.8 percent from the prior year.

Proctor & Gamble (PG) exceeded earnings estimates on strong sales. United Airlines (UAL) reported a loss and said first quarter sales could be down 70 percent. It expects to fully recover and exceed pre-pandemic profitability by 2023.

United Health Group (UNH) bested forecasts last quarter, but earnings were down 39 percent as people avoided going to the doctor. Bank of America (BAC) extended the winning streak in financials by exceeding analyst profit predictions.

Netflix (NFLX) jumped 13 percent this week after it achieved strong subscriber growth. It added 8.5 million subscribers, or 2.5 million more than expected. During the peak of the pandemic, Netflix added 8.8 million subscribers. At the time, it said that was likely a highwater mark for subscriber growth.

Energy service company Schlumberger (SLB) beat earnings estimates by 29 percent.  The company said it sees a strong rebound in demand this year, and believes the full recovery from the pandemic could finish next year.

A short-squeeze in shares of Gamestop (GME) sent shares of the retailer up 59.58 percent on the week, with almost all of the gains coming on Friday. Bears had shorted more than the available shares, creating the conditions for speculators to execute a squeeze. Other heavily shorted stocks also moved up on Friday afternoon, such as movie theater chain AMC Entertainment (AMC) and BlackBerry (BB), as speculators started hunting for more targets.

January’s preliminary IHS Markit manufacturing and service activity readings were positive. The January Manufacturing PMI Index increased from a reading of 57.1 in December to a new preliminary reading of 59.1 for January, contrary to the consensus dip expectation to 56.5. Similarly, Friday’s IHS Markit Services PMI Index preliminary reading of a jump from 54.8 in December to 57.5 for January handily beat consensus expectations of a drop to 53.4.

Crude oil (CL=F) prices fell by 1.54 percent to $52.31 per barrel by Friday’s close.  Oversupply concerns arose after U.S. inventories vastly outpaced their projected decline of 2.6 million barrels by S&P Global Platts. A statement by the Energy Information Administration on Friday said the inventories of U.S. crude oil showed a significant increase of 4.4 million additional barrels based on inventories as of January 15^th.

Gold experienced a 0.6 percent loss on Friday, ending at $1,855.70 an ounce. The U.S. dollar climbed higher by 0.1 percent on the day to close at 90.22.

The 10-year Treasury bond yield was down by 1.62 percent on Friday to 1.091. Even with purchases by the Federal Treasury exerting downward pressure on yields, the relatively positive U.S. economic data released over the week helped to balance out any potentially larger declines in Treasury yields. Although the weekly jobless claims are at around 900,000, the total weekly claims are still down from their multi-month high. In addition, data out from the housing sector this weekend shows that new U.S. home sales are now at their highest level in 14 years.

Janet Yellen was approved by a unanimous vote of the U.S. Senate Finance Committee as Treasury Secretary. Earlier in the week, Yellen publicly confirmed her position that the Treasury Department would take an active role in supporting federal economic recovery initiatives. On Monday, the full U.S. Senate vote is expected to confirm her nomination.

Stocks closed down slightly on Friday. The Dow lost 0.6 percent, the S&P 500 dropped 0.7 percent, and the Nasdaq had the largest slide at 0.9 percent for the day. The Russell 2000 Index also dipped 1.49 percent for the day.

For the week, the small-cap Russell 2000 Index was the lone gainer among the major indexes, rising 1.51 percent. The Nasdaq slid 1.54 percent, the S&P 500 Index 1.48 percent and the Dow Jones Industrial Average 0.91 percent.

Crude oil prices decreased on Friday. West Texas Intermediate (WTI) crude oil prices fell 3.13 percent to $52.04 per barrel. The international benchmark Brent Crude (BZ: NMX) also dropped by 2.84 percent to $54.82 per barrel. Gold declined to $1,826.47 per ounce.

Three sectors were positive on the week: energy, utilities and financials. SPDR Energy (XLE) added 3.21 percent, SPDR Utilities (XLU) 1.04 percent and SPDR Financial (XLF) 0.16 percent. First Trust ISE Revere Natural Gas (FCG) increased 8.37 percent and SPDR S&P Regional Banking (KRE) climbed 2.30 percent. The biotechnology subsector extended its winning streak. iShares Nasdaq Biotechnology (IBB) increased 2.21 percent.

Lockdowns hit small business confidence in December. The National Federation of Independent Business said its index slipped from 101.4 in November to 95.9 in December.

Consumer prices met expectations in December. The headline CPI rose 0.4 percent and core CPI rose 0.1 percent. Producer prices increased 0.3 percent, missing forecasts of 0.4 percent.

December retail sales were hurt by lockdowns. Sales fell 0.7 percent, more than the 0.1-percent drop projected by economists. Sales ex-autos slumped 1.4 percent. One surprise was a 5.8 percent decline in online sales, indicating the tailwind for online retail could be ending.

Initial jobless claims climbed to 965,000 in the week ended January 9. Economists were looking for 800,000 claims. As with the other data, the intensified lockdowns in some states was responsible for most of the data misses.

Despite the flat spending data following the holiday retail season, the University of Michigan’s consumer sentiment index only came in at 79.2, only 0.3 points lower than the consensus forecast of 79.5. December’s final level was 80.7.

J.P. Morgan (JPPM) kicked off earnings season with an impressive earnings beat. Analysts were looking for $2.72 per share in earnings, but the bank turned in $3.79 per share.  Citigroup (C) also beat with $2.08 per share in profit versus $1.35 forecast. Wells Fargo (WFC) did too with $0.64 versus $0.59 projected.

In light of the $1.9 trillion federal stimulus package proposal touted by President-elect Biden, which includes a proposed $1,400 direct payments to individual taxpayers, Bank of America has improved its projection for growth in the first quarter from 1 percent to 4 percent. Along those lines, Bank of America also adjusted its 12-month GDP growth forecast from 4.6 percent to 5 percent.

On Thursday, Federal Reserve Chairman Jerome Powell publicly confirmed the Fed’s commitment to its asset purchase plans and its near-zero interest rate policy. Notably, Powell commented that should the Fed decide to ease back or reverse course on its asset purchase plans, that would necessarily follow the Fed’s signal of a tiered approach to avoid any panic over a sudden shift in Fed policy. Powell’s public statements should rebuff any short-term concerns surrounding a potential uptick in inflation necessitating an interest rate hike, especially as the Fed continues to target an inflation rate of close to 2 percent. On Friday, the 10-year Treasury yield fell to 1.096 percent. Similarly, the 30-year Treasury yield dropped 4 basis points on the day to 1.838 percent. The U.S. dollar was up for the day, with an increase of 0.6 percent to 90.77.

In observation of the Martin Luther King Jr. federal holiday, U.S. markets will be closed for the day. For the week ahead, key housing data will be reported, including existing home sales, PMI breakdowns, housing starts, and new permits for building.

The week opened with a bit of a slip for the major stock indexes. The S&P 500 dropped 0.66 percent, the Nasdaq lost 1.25 percent, and the Dow declined 0.29 percent. Real estate and technology were the major sector underperformers for the S&P 500. The Russell 2000 Index was down slightly for the day with a loss of .03 percent.

Tech companies, specifically social media platforms, took a tumble on Monday after contentious developments over the weekend regarding several companies’ decisions to ban President Trump from their platforms. Facebook (FB) shares lost 4 percent and Twitter (TWTR) shares dipped 6.4 percent. Amazon.com (AMZN) shares lost 2.15 percent, while Apple (AAPL) shares declined 2.3 percent. Microsoft (MSFT) shares dropped 1 percent on the day.

Tesla declined on news that Faraday Future was in talks with a special purpose acquisition company (SPAC). Property Solutions Acquisition Corporation (PSAC) gained 18.81 percent on news it was in talks with electric car maker Faraday. It’s debatable how much competition Faraday will give Tesla in the electric vehicle market, but it’s entry into the stock market could draw capital away from Tesla. Tesla has gained 800 percent over the past year. It dipped 7.82 percent on Monday.  SPDR Consumer Discretionary (XLY) dipped 1.87 percent on Monday. Tesla is 18.65 percent of the fund, behind only Amazon (AMZN).

West Texas Intermediate (WTI) crude oil prices decreased to $52.10 per barrel on Monday, a loss of 0.3 percent. After fighting past intraday lows on Monday, prices per barrel on the international benchmark Brent Crude (BZ: NMX) likewise fell 0.95 percent to $ 55.46. Copper also lost 3 percent for the day at $3.56 a pound. Gold gained 0.39 percent on Monday and is up to $ 1,849.70 per ounce.

The 10-year Treasury note yield increased for the fifth day in a row to 1.13 percent, its peak since last March 2020. Although not nearly close to the point of concern, an increase in the 10-year yield can spell out inflation issues down the line. Stocks typically respond negatively to the strong possibility of this trend. The U.S. Dollar also increased 0.62 percent on Monday. Both the dollar and bond rates bumped up for the day on the expectation that the newly confirmed Democratic controlled house and senate will accelerate additional coronavirus stimulus relief spending.

The strength of the dollar was one of the factors in cryptocurrencies taking a tumble on Monday. Bitcoin experienced its largest two-day loss since last March after dropping over 21 percent between Sunday and Monday. This represented around $140 billion in losses for the market.

iShares MSCI Emerging Markets (EEM) declined 1.35 percent and iShares MSCI EAFE (EFA) 1.31 percent. Rumors that Alibaba (BABA) could be nationalized by the Chinese government weighed on emerging market funds with hefty China tech exposure. iShares China Large Cap (FXI) has less and fell 1.35 percent, Invesco Golden Dragon (PGJ) has more and dipped 2.77 percent.

December retail sales are out this week. Analysts forecast declines of 0.1 percent and 0.4 percent ex-autos. Economists predict producer and consumer prices both increased 0.4 percent last month.

President-elect Biden announced that he will outline his new stimulus funding proposals on Thursday. U.S. initial jobless claims numbers are also out that day. The week will close with the release of the latest U.S. retail sales data, industrial production levels, business inventories and consumer sentiment figures.

Earnings season kicks off this week with Charles Schwab (SCHW), Delta Air Lines (DAL) on Thursday. Friday brings the mega banks J.P. Morgan (JPM), Citigroup (C), Wells Fargo (WFC) and regional giant PNC Financial Services (PNC). The consensus forecast coming into earnings season calls for an 8.8 percent drop in S&P 500 earnings. Analysts predict financial sector earnings will fall 7.5 percent. Prior quarters have seen the banks handily beat expectations.