403(b) Curriculum Library

Market Moves: February 8, 2021

The U.S. stock markets recovered quickly from last week’s decline, with many of the major indices climbing to new all-time highs. The market’s recovery was driven by strong corporate earnings, the expectation that the new Biden administration may be able to pass its $1.9 trillion stimulus bill without full partisan support, and investors piling back in to buy the recent dip. Here are some other insights on the markets and the economy from last week:

Stock markets recovered from last week’s sell-off, as investors eager to buy the recent dip poured back into the market. Renewed growth optimism, strong earnings results, and expectations for additional fiscal stimulus also contributed to the market’s broad-based gains, propelling most major indices to new record highs. The S&P 500 Index finished the week up 4.7%, the Dow rose 3.9%, and the NASDAQ gained 6.0%. U.S. small cap stocks, as represented by the Russell 2000 Index, also closed at an all-time high, gaining 7.7% on the week.

Nearly 60% of companies in the S&P 500 Index have reported earnings and the results continue to be better than expected. A record 81% of companies beat their earnings estimates, doing so by a wider margin than average. According to FactSet, this quarter’s positive earnings surprise is on track to be the third largest since they began tracking the metric in 2008. Investors continue to cheer the stronger-than-expected results, pushing stock prices even higher, as they anticipate continued momentum into 2021.

The short squeeze trade that gripped the markets late last month is starting to recede. The share prices of GameStop (GME) and AMC Entertainment (AMC) are now down sharply from their peaks. Retail investors turned their attention to the silver market this week, but they did not gain much traction after the commodity exchanges lifted margin requirements. While the frenzied trading in a few individual stocks has faded for now, it is too early to conclude that we have seen the last of this trend.

Citigroup’s Panic/Euphoria Index, a composite that measures market sentiment and often a great contrarian indicator, is now at the highest level on record. While the Index is a single data point, coupled with recent investor behavior, it has many wondering whether the stock market is currently in bubble territory. It does not appear that the market is on a cusp of another “Minsky Moment,” a speculative frenzy that reaches a tipping point that eventually results in a broad market crash; however, this type of erratic investor behavior, at a time when market valuations are frothy, is certainly notable.

Longer-term government bond yields continue to march higher, with the 10-year Treasury rising 7 basis point to 1.17% this past week. The yield curve, the difference between 2-year and 10-year Treasuries, steepened further, as short-term interest rates remain anchored by the Federal Reserve’s near-zero interest rate policy. While the economy is currently going through a soft patch, the yield curve steepening is supported by growing optimism of a strong economic rebound in the second half of the year, strong earnings, and expectations of additional stimulus.

While the focus has been on speculative shorts in the stock market, one of the largest consensus bets from professional money managers is a short position on the U.S. Dollar This means that they are hedging that the U.S. Dollar will depreciate versus other foreign currencies. After falling nearly 13.0% since last March, the U.S. Dollar is seeing a strengthening trend in recent weeks. While the dollar’s recent correction has been modest thus far, the move is certainly worth monitoring.

The number of Americans filing for first time unemployment benefits declined to 779,000 last week, slightly better than expected. Continuing claims, which reports the number of American’s currently receiving benefits, also continued to drift lower, failing to 4.6 million. While the jobless claims data is slowly improving, it is worth remembering that there are still 17.8 million Americans claiming unemployment benefits when the federal pandemic-related programs are included. This suggests the labor market recovery still has a long way to go.

The U.S. economy added 49,000 jobs in January, modestly weaker than expectations. There were also downward revisions to the prior months, which suggests the labor market continues to struggle due to the lingering virus. While the unemployment rate fell to 6.3% from 6.7%, this was largely due to a lower labor force participation. The U-6 unemployment rate, which many consider a better reflection of the true unemployment rate given it includes discouraged, marginally attached, and part-time workers who want more hours, declined to 11.1%.

Indices: Core Bond: Bloomberg Barclays U.S. Aggregate Index, High Yield: ICE BofA US High Yield, Large Value: Russell 1000 Value Index, Large Blend: S&P 500 Index, Large Growth: Russell 1000 Growth, Emerging Markets, MSCI EM NR USD, Foreign Equities: MSCI ACWI Ex USA NR USD, REITs: FTSE NAREIT All Equity, Small Blend: Russell 2000

Should you have additional questions, please contact your Cammack Retirement Group consultant or info@cammackretirement.com. Note that this article was published on February 8, 2021. Data represented is as of the publication date. The information contained herein has been obtained from sources that are believed to be reliable. However, Cammack Retirement Group does not independently verify the accuracy of this information.

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.

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