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Week in Review: January 22, 2021

Recap & Commentary

Equity markets enjoyed a positive week with several indices racking up consecutive days of gains as investors acted on the perceived stability that the new presidential administration has provided. Within hours of his inauguration, President Biden began signing executive orders aimed at containing the pandemic and halting many of former President Trump’s policies. Despite getting more than thirty executive orders signed in his first three days in office, President Biden was quickly faced with opposition to his $1.9T stimulus plan by Senate Republicans and moderate Democrats, causing skepticism by markets and citizens alike of whether his plan is feasible. In Europe, stock indices dipped after Germany cut its economic growth forecast, and Boris Johnson warned the UK’s lockdown may last into the summer.

As America approaches the one-year anniversary of its first confirmed coronavirus case, the death toll now stands at 415K, and ~2.1M globally, and continues to rise. In an attempt to control the spread from travelers, President Biden signed an executive order requiring anyone entering the US to first obtain a negative COVID test. Through Friday, ~19 million vaccine doses had been administered in the US, though hiccups in distribution channels remain.

Through Friday, 13% of S&P 500 companies had reported fourth quarter earnings, with 86% beating their consensus estimate. In aggregate, the companies that have reported so far have beat earnings expectations by 22.4%. Currently, fourth quarter earnings are expected to contract 4.7%.

Economic Bullet Points

Housing remains an economic bright spot in December as housing starts rose 5.8%, to an annualized rate of 1.669M, the highest level since 2006. Permits, a leading indicator of future housing activity, rose 4.5% to an annualized pace of 1.709M. In 2020, the housing market benefitted from historically low mortgage rates and strong demand from people looking to move from cities to suburbs. As we enter 2021, those tailwinds should persist, at least in the near term. However, the sector continues to grapple with a lack of affordable lots, labor shortages, and surging material costs, as evidenced by a 52% increase in lumber prices in December, from the prior year. Existing home sales rose slightly in December to an annualized pace of 6.76M. In 2020, existing homes sales rose 22% to 5.64M, the most since 2006.

Weekly jobless claims fell slightly from 926K to 900K.  Continuing claims also fell, from 5.18M to 5.05M. However, the elevated levels reflect the ongoing impact of the coronavirus on the labor markets and the challenge of recovering the 22M jobs lost in March and April of 2020.

Preliminary readings of the manufacturing and services sectors showed that both saw an uptick in activity during January.  However, the underlying data was more mixed as evidenced by employment within the services sector which fell to its lowest level since July.

Of Note

The Senate Finance Committee unanimously voted in favor of Janet Yellen’s nomination as the first woman Treasury secretary. The vote will go to the Senate on Monday, January 25.

Market Indices Week of 01/22

S&P 5001.9%
Small Caps2.1%
Intl. Developed0.7%
Intl. Emerging2.6%
Commodities-1.7%
U.S. Bond Market0.0%
10-Year Treas. Yield1.09%
US Dollar-0.6%
WTI Oil ($/bl)$52
Gold ($/oz)$1,886

The Week Ahead

  • GDP – 4Q20
  • Consumer Confidence
  • Durable Goods Orders
  • New Home Sales
  • PCE Inflation
  • Personal Incomes & Spending
  • Weekly Jobless Claims

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