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Week in Review: January 29, 2021

Recap & Commentary

Equity markets ended down in a week dominated by a struggle between retail investors and large institutional hedge funds, and uncertainty about the efficacy of vaccines against new coronavirus variants. The S&P 500 posted its largest weekly decline in three months after internet chat room users traded on heavily shorted stocks like GameStop and AMC, creating a short squeeze that sent hedge funds reeling and caused trading platforms to impose restrictions aimed at curbing the volatility.

Following its January meeting, the Federal Reserve reaffirmed its commitment to keeping rates low and continuing its bond buying program. In response to speculation that the Fed might be considering tapering its bond purchases, Chairman Powell stated that such talk was “premature” and that the Fed is “focused on finishing the job we’re doing, which is supporting the economy.”

As the death toll in the US nears 440k and more contagious mutations of the virus emerge, vaccine makers are racing to develop boosters to protect against the new strains. Most worrisome is a mutation that originated in South Africa. The strain was found in South Carolina this week and contains mutations that may help the virus resist vaccines and antibody treatments.

Through Friday, 37% of S&P 500 companies had reported fourth quarter earnings, with 82% beating their consensus estimate. Currently, fourth quarter earnings are expected to contract 2.3%, far better than the expected 9% decline estimated at the start of earnings season.

Economic Bullet Points

U.S. economic activity (GDP) expanded 4.0% in the fourth quarter, down from the 33.4% growth experienced in the third quarter.  Business spending was the largest contributor, followed by consumer spending. Net exports and government spending both detracted from overall growth. For the full year, 2020 GDP shrank 3.5%, the largest decline since 1946.

In a separate report, consumer spending declined in December for the second consecutive month. However, personal incomes rose for the first time in three months, aided in part by increased government social benefits. Given the economic importance of consumer spending, December’s report suggests that the economy entered 2021 with little momentum. However, with incomes increasing and vaccine distribution accelerating, there is hope that the economy will benefit from pent up consumer demand as the first quarter, and the year, progresses.

Other data released during the week corroborated the idea that the economy entered 2021 with slowing momentum. Durable goods orders, new home sales, and pending home sales all missed their consensus estimates. Measures of consumer confidence were largely unchanged. However, in a positive sign, consumers’ outlook for the next six months improved, even as their view of current conditions deteriorated.

Of Note

General Motors (GM) announced plans to eliminate all sales of gasoline powered cars and light SUVs by 2035. In their place, GM plans to offer 30 models of electric vehicles,  of which 20 will be available for sale in the US.

Market Indices Week of 01/29

S&P 500-3.3%
Small Caps-4.4%
Intl. Developed-3.5%
Intl. Emerging-4.5%
Commodities1.2%
U.S. Bond Market0.0%
10-Year Treas. Yield1.07%
US Dollar0.3%
WTI Oil ($/bl)$52
Gold ($/oz)$1,847

The Week Ahead

  • Jan. Employment Report
  • ISM Manufacturing
  • ISM Services
  • Trade Balance
  • Weekly Jobless Claims

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