Thursday, 21 January 2021

During the week of the exchange of power in the White House, the S&P 500 returned 1.5%, led by large cap growth stocks and technology companies.


Small caps and value stocks dropped over concerns for potential federal mandates on social distancing. Energy shares fell 5% with the Biden administration set to ban all new permits for drilling on federal lands for at least 60 days, which raises concerns about a potential push to curb fracking in the U.S. Abroad, developed international stocks also fell, led by Europe and Japan after comments from the ECB and the Bank of Japan. Emerging markets shares, however, led major indices this week, up 2.2% with China shares up 5.8% as the new administration is largely anticipated to have a more amiable tone towards the world’s second largest economy. Fourth quarter 2020 earnings season began on Friday, with big banks ups first. JPMorgan Chase, Citigroup, Wells Fargo, and Morgan Stanley all beat on earnings, though some in particular were largely due to higher than anticipated declines in loan loss provisions. Netflix missed on their bottom line due to high net cash used for operations, but shares rose roughly 17% with subscriber growth smashing expectations as 8.5 million net new accounts joined as compared to the anticipated 6.1 million, pushing the company’s global total to about 204 million. According to FactSet, fourth quarter earnings for the S&P 500 are expected to decline 6.8%, which though would be one of the worst since 2009, is much improved from estimates from September 30th for growth of -12.7%.


Fixed income indices rose as investors sought less-risky assets over concerns over economic growth going forward. The yield on the benchmark 10-year U.S. Treasury note fell 2 basis points to 1.11%, and the yield on the 2-year note also fell 2 basis points to 0.12%, leaving the steepness of the curve unchanged. Biden’s nomination for the Secretary of Treasury has gone to Janet Yellen, so markets anticipate higher coordination between the Treasury and the Federal Reserve, where Yellen served as chair from 2014 to 2018.


Employment readings remain a central focus for investors and policymakers. Initial jobless claims for the week were 900,000, which is lower than the anticipated 935,000 and down 26,000 from the prior week. Continuing claims for pandemic emergency unemployment compensation continues the decline since mid-December, but the overall number of those on unemployment benefits remains high at just over 15 million. Additional economic stimulus is another primary concern for markets, but the path to being inked by President Biden is now unclear with Congress focusing on Cabinet confirmation hearings and what some legal experts paint as a questionable Senate impeachment trial for President Trump who has now finished his term. In the meantime, Biden has turned to the use of executive orders to push through changes focused on the economy and coronavirus, as well as immigration, the environment, and student loans. 

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