Market Perspective for January 24, 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 15th.

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.

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