Weekly Snapshot February 1st, 2021
Market Review: Week Ending 1/29/2021
Major stock indexes posted their worst weekly decline since October of last year. Markets were solidly lower for the week, as the Dow Jones Industrial Average (DJIA) and the S&P 500 Index (S&P500) fell 3.3%, and the NASDAQ Composite (NASDAQ) dropped 3.5%. For the month of January, the DJIA declined 2.0%, the S&P500 decreased 1.1%, while NASDAQ gained 1.4%.1 Volatile “short squeeze” trading raised concerns of speculative excesses in the market, and the CBOE Volatility Index surged to 33.1- the highest level in three months.2 All major market sectors were lower for the week. Consumer Staples and Real Estate outperformed while cyclically natured sectors (Materials, Energy, Financials, and Consumer Discretionary) led to the downside.
Historically, January’s performance has been an indicator of the equity markets for the rest of the year. Since 1928, if January returns are positive, the probability of a positive year increases to over 79% from 68%; however, if January returns are negative, the probability of a negative year increases to over 54% from 32%.3
Substantial fiscal stimulus coupled with very, easy monetary policy is enabling a strong earnings recovery. For the quarter, over 180 S&P500 companies have reported, roughly 70% have topped revenue forecasts, and approximately 80% have beat earnings projections.4 Although improving, year-over-year earnings are still projected to be lower. The combination of demanding valuations in Mega-growth stocks and the short squeeze frenzy has overshadowed good performance in corporate earnings to date.
Meanwhile, the Federal Reserve (FED) reiterated its highly accommodative stance to combat the severely elevated unemployment levels. During the FED’s news conference, Chairman Powell gave no indication of any change in their very “Dovish” monetary policy.
Concerning the economy, real gross domestic product (GDP) increased at an annual rate of 4.0 percent in the fourth quarter of 2020, according to the advance estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 33.4 percent versus the sharp declines in the first half of the year. Real GDP decreased 3.5 percent in 2020 (from the 2019 annual level to the 2020 annual level), compared with an increase of 2.2 percent in 2019.
WHAT WE WILL BE WATCHING THIS WEEK
- Big week in earnings with Amazon and Google reporting – Does the strong earnings season continue?
- Is there continued fallout from the “battle” of short-sellers and retail traders?
- January’s job number on Friday – Is the employment picture continuing to slow?
- Stimulus discussions coming from Washington – Will Congress pass another COVID economic plan and in time?
- On a technical note, the S&P500 Index is trading at its 50-Day moving average (a support level not seen since early November last year) – Will this support level hold or be broken?
In general, we are keeping our eye on the economy, corporate earnings, monetary & fiscal policies, not the current “distraction” in the sandbox between short-selling hedge funds and aggressive retail investors.
STOCKS IN THE NEWS
Microsoft and Apple (held in Fundamentum GIE and other portfolios) both reported strong earnings and revenues this week. Microsoft earnings were led by strong growth coming from Azure, its cloud-based services division. Apple’s results were above consensus with margin upside and growth across all hardware segments. Given their demanding valuations, Microsoft was up 2.66% for the week while Apple was down 5.11%.5
As always, we appreciate your confidence in our team.
Fundamentum Investment Committee
John Nichol, CFA® – Chief Investment Officer
Paul Danes, CFA® – Investment Committee
Trevor Forbes – Investment Committee
Robert Armagno – Investment Committee
Matt Dunn, CFA® – OSJ Supervisor
1 Charles Schwab – 1/29/2021
2 John Hancock – 1/29/20221
3 Cornerstone Macro – 1/31/2021
4 Charles Schwab – 1/29/2021
5 Barchart – 1/29/2021
Investment advice offered through Fundamentum LLC a registered investment advisor. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. There is no assurance that the investment objective of any investment strategy will be attained. Investing involves risk including loss of principal. Past performance is no guarantee of future performance. All indices are unmanaged and may not be invested into directly.