Stocks Open Higher

Posted on January 20, 2021 by Rick Fisher Jr.

Market Signals Covers It All

This week’s Market Signals podcast covers all the latest events impacting markets and the economy: Q4 earnings, a new stimulus proposal, the Democratic blue wave, and President-elect Joe Biden’s new economic policy plan. Watch Market Signals: More Stimulus, New Policies, and Stellar Earnings Season.

Daily Insights

Stocks open higher following the long weekend

  • US stocks rise as investors await US Treasury Secretary Janet Yellen’s stimulus pitch to Congress.
  • Bond yields are higher.
  • European markets are mixed in early trading.
  • Asian stocks were mostly higher, with China the lone decliner.

Earnings season off to a very strong start relative to expectations

  • Only about 5% of S&P 500 companies have reported results, but 96% have beaten estimates.
  • Forward 12 months’ estimates impressively have already increased by 0.5% since January 1, 2021.
  • Stability of estimates is key to enabling stocks to grow into lofty valuations.

Investment-grade credit spread nears cycle tight

The extra yield that investors demand for investment-grade (IG) corporates over similarly dated Treasuries was at 1% as of Friday, January 15. This is near the tightest level of the last economic cycle—0.91% in February 2018—indicating strengthening economic confidence but increasingly expensive valuations. We still see an incremental advantage in IG corporates over Treasuries, but continue to emphasize mortgage-backed securities (MBS) for their lower interest-rate sensitivity. For more on credit spreads and our bond outlook, see today’s LPL Research blog.

Events this week include:

  • Tuesday: Treasury Secretary nominee Janet Yellen’s Senate confirmation hearing
  • Wednesday: Inauguration of President-elect Joe Bidenand Vice President-elect Kamala Harris
  • Wednesday: National Association of Home Builders (NAHB) Housing Market Index (Jan.)
  • Thursday: Weekly initial unemployment claims report, housing starts, building permits (Dec.), and Bank of Japan and European Central Bank policy decisions
  • Friday: Purchasing Managers’ Index (PMI) from Markit (Jan.) and existing home sales (Dec.)
  • All week: 40 S&P 500 companies will report fourth quarter 2020 results.

Technical update

US stocks came under pressure Friday as crowded positioning in cyclical sectors may be increasing the risk of a pullback.

  • Cyclical minus defensive sector ETF flows have surpassed their 2016 high.
  • Market positioning may be tactically crowded in the short-dollar trade.

COVID-19 news

The United States reported 138,000 new COVID-19 cases Monday. New cases were down 35% week over week, while the 7-day average is down 17% from its peak (source: COVID Tracking Project).

  • Cases in Western Europe as a whole continue to rise as new case growth in Spain remains uncontained.
  • Israel continues to lead the world in the rollout of the vaccine, where more than 25% of the population have been vaccinated.

Research Communications   

New Street View Video Sets Positive Tone

The stock market has started off 2021 surprisingly well, and LPL Research Chief Market Strategist Ryan Detrick says this bull market is alive and well. “Surprises to Start 2021,” the first Street View video of the New Year, is approved for clients.

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data are from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

  • Not Insured by FDIC/NCUA or Any Other Government Agency
  • Not Bank/Credit Union Guaranteed
  • Not Bank/Credit Union Deposits or Obligations
  • May Lose Value

For Public Use – Tracking # 1-05100883