Market Perspective for January 17, 2021

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.

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