After a week where the market was figuratively “flipped upside down”, this week marked a return to some sense of normalcy. Encouraging vaccine numbers indicated a potential return to normal, share prices of steeply overvalued “Reddit stocks” gave back many of their gains from the week prior, positive earnings results were rewarded, and manufacturing numbers painted an optimistic picture for the economy moving forward.
1. Positive Vaccine News – Vaccine-related news continued to trend in a positive direction, as an average of 1.35M shots were recorded each day. Additionally, the single-dose vaccine from Johnson & Johnson means that there are now three highly effective versions of the vaccine in circulation. Predictably, daily deaths, current hospitalizations, and daily case totals are all rapidly declining. While this may lower the chances of another massive COVID-related stimulus packages, those odds are decreasing for all the right reasons.
2. Market Stabilization – Last week, many poor performing companies saw share prices skyrocket as part of the Reddit-fueled squeeze on short-selling hedge funds. Additionally, many companies with very solid fundamentals posted impressive earnings numbers, only to be met with little to no reward. This week, things began normalizing. Thanks in part to restrictions implemented by Robin Hood (along with a healthy dose of rational market behavior), stocks such as GME and AMC gave back many of their artificially inflated gains from last week. Additionally, companies who reported strong earnings, such as Google, PayPal, and UPS were all appropriately recognized for their outperformance last quarter. While markets may not always behave predictably or rationally in the short-term, the cream always tends to rise to the top, in the long run.
3. Optimistic Numbers – Data released that bodes well for future market behavior:
A. With nearly half of all S&P 500 companies having reported quarterly earnings:
I. 60% have increased estimates for Q1 Profitability.
II. 9% left current estimates unchanged.
III. 31% lowered estimates.
B. With nearly 2/3 of all reporting companies raising estimates, there is plenty of reason
for near-term optimism.
C. U.S. manufacturing growth continued to recover in January, as two major indicators
of manufacturing activity both indicated that the sector is in expansion mode. This
uptick in manufacturing activity is another positive sign that the economy is continuing
to expand.
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