All Quiet on the Western Front
The battle that raged between retail investors and institutional investors ended quietly last week as retail investors ran out of runway while hedge funds revised their models and regrouped. Fundamentals became important once again last week and the data was positive overall.
Corporations are on pace for the first year-over-year growth in earnings since the 4th quarter of 2019. Analysts are expecting double-digit growth earnings growth for all 4 quarters of 2021. It would appear that the soft-patch of data from the 4th quarter was temporary. The economic releases for the past couple of weeks have been strong, and last week was no exception. Factory Orders, Construction Spending, Vehicle Sales, and Manufacturing / Services data all surprised to the upside and out-paced the previous month's reading. Weekly Jobless Claims came in lower than expected the ADP data on private payrolls for January increased by 174,000 after dipping in December. The Jobs Report on Friday, however, only showed 49,000 jobs were added in January. December jobs were revised lower by 87,000 for a total of 227,000 jobs lost, so against that backdrop, January's gains were actually better than they suggest.
The COVID numbers continue to decline and are on a strong pace toward the pandemic ending sometime in 2021. The positive rate for COVID tests has plummeted from 13.7% four weeks ago to 7.2% as of yesterday. The 7-day average for daily cases is down 53% from the January 11th peak. Hospitalizations are down 39% since the January 6th peak. In the U.S., vaccinations are proceeding at a faster pace than any other country. So far, 59.3 million doses of the Pfizer & Moderna vaccines have been administered and 9.1 million people have been fully vaccinated. At this pace, the CDC estimates that 50% of the population will have been vaccinated by early July and with 25-30% of the population already having been infected, herd immunity should be achieved by the Summer. As Johnson & Johnson seeks FDA approval and the vaccine only requires one shot, the path to immunity could happen a little faster than expected.
Lastly, Congress will be working on a COVID stimulus plan worth $1.9 trillion. This may be a little difficult to achieve as the Senate will be focused on an impeachment trial and confirming appointees to the new administration. Meanwhile, hotels occupancies, restaurant diners, and airline traffic are all well off their pandemic lows, but still only 30-50% of where their long-term volume typically stands. Getting states fully re-opened should be the priority.
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