Weekly Snapshot February 16th, 2021
Market Review: Week Ending 2/12/2021
The equity markets edged higher for the week. Even with these modest gains, the Dow Jones Industrial Average (DJIA), the S&P500 Index (S&P500), the NASDAQ Composite (NASDAQ), and the Russell 2000 Index (R2000) all ended the week at all-time highs. For the week, the DJIA advanced 1.0%, the S&P500 gained 1.2%, the NASDAQ increased 1.7%, and the R2000 jumped 2.5%.1 Outperforming S&P500 sectors were Energy +4.33%, Technology +2.30%, and Financials +2.00% while underperforming S&P500 sectors were Utilities -1.79%, Consumer Discretionary -1.26%, and Consumer Staples -0.10%.2 Year-to-date, the DJIA has returned 2.8%, the S&P500 4.8%, the NASDAQ 9.4%, and the R2000 15.9%.3
Fourth Quarter earnings are providing significant support for the markets. According to FactSet’s Earnings Insight, with 74% of the S&P 500 constituent companies reporting, 80% posted upsides to earnings, the highest proportion since FactSet began tracking in 2008. In addition, 78% of the companies have reported positive revenue surprises. The current, year-over-year earnings growth rate for the S&P500 is at 2.9%, the first positive year-over-year earnings growth rate since the fourth quarter of 2019.4 Earnings for companies across the globe are also improving. Over the past 30 days, a total of 830 companies in the MSCI World Index saw estimates revised up, while 483 saw estimates lowered.5
Equity participation is also increasing. Bank of America’s latest Flow Show report found that weekly equity inflows hit a record $58.1 Billion(B). U.S. large-cap inflows were second-highest on record at $25.1B while small-caps had the third-largest inflow at $5.6B.6
Although the January Consumer Price Index (CPI) shows relativity little signs of inflation, inflation expectations are rising due to expected economic growth as seen in solid corporate earnings, continued central-bank support, prospects for a large stimulus package, and better COVID numbers with rising vaccine optimism. The 10-year TIPS breakeven rate hit 2.22% this week, the highest level since 2014.7 The 10-year Treasury yield rose to 1.21%, the highest since March of 2020. Finally, the yield curve has steepened as investors demand more yield to hold longer-dated bonds. Despite these inflation signs, Federal Reserve Chairman Powell delivered remarks to the Economic Club of New York highlighting their commitment to keep an accommodative monetary policy stance and patience with inflation.
One area of concern was the preliminary Michigan Consumer Sentiment for February falling below last month to a six-month low. Most consumers viewed prospects worse than the previous month, led by households with incomes below $75,000.8 Passage of the stimulus package should have a positive impact on these sentiment numbers going forward.
WHAT WE WILL BE WATCHING THIS WEEK
- Corporate earnings led by Walmart, Deere, and CVS.
- Economic reports highlighted by the Empire State Index and Retail Sales.
- Updates on the level of COVID cases, the pace of vaccine distribution, and the speed of the new variant spreading.
- Status and level of the stimulus package making its way through Congress.
STOCKS IN THE NEWS
- Despite a return to profitability and revenues coming ahead of expectations, Disney’s stock (held in Fundamentum GIE) fell 1.7%, given concerns over the profitability of Disney+ and the COVID variants’ potential impact on park re-openings. Offsetting this poor price performance is Disney’s stock price performance over the last three months increasing by over 35%.
- Cisco Systems (a large-tech, networking company held in Fundamentum GIE) reported both an earnings and revenue beat on order growth and strong gross margins.
- PepsiCo (held in Fundamentum GIE) delivered inline numbers but raised their dividend by 5.1%.
- Of note, DuPont de Nemours met guidance for the quarter but raised 2021 year-end earnings to $3.30 – $3.45 per share, well ahead of consensus numbers around $3.19.
As always, we appreciate your confidence in our team.
Fundamentum Investment Committee
John Nichol, CFA® – Chief Investment Officer
Trevor Forbes – Investment Committee
Robert Armagno – Investment Committee
Matt Dunn, CFA® – Chief Compliance Officer
1 Charles Schwab – 2/12/2021
2 FactSet – 2/12/2021
3 Charles Schwab – 2/12/2021
4 FactSet – 2/12/2021
5 Charles Schwab – 2/12/2021
6 FactSet – 2/12/2021
7 FactSet – 2/12/2021
8 FactSet – 2/12/2021
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.