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Scott Poore, AIF, AWMA, APMA

Back to Normal, For Now

The war between Main Street and Wall Street seems to be over for now. The hedge funds have reworked their positions and have adjusted their models. You can bet they won’t get caught with their pants down again in the near future. Here’s what we’re seeing so far this week:


• Really Strong Fundamentals. The market is focused on fundamentals again now that volatility has settled down. This week, the economic numbers have been strong overall. This morning Weekly Jobless Claims were down more than expected (779k vs 830 expected) and last week’s claims were revised lower from 847k to 812k. The manufacturing and services data looked good overall as both the Markit Manufacturing Index and the Markit Services Index was higher for January. The big data point everyone will be watching is the Jobs Report tomorrow. Yesterday, ADP private payrolls increased more than expected in January (+174k vs +49k expected). Today's Jobs Report disappointed as only 49k jobs were added as the market was expecting an increase in 50k jobs. The Unemployment Rate was expected to stay at 6.7%, but instead fell to 6.3%. This is more likely due to people leaving the job hunt. The market has largely shrugged off the jobs report. The National Financial Conditions Index is stable, as is the Fed’s Financial Stress Index. The next few weeks for investors will be anxious as we will soon mark the beginning of the pandemic in 2020 and the contrast in economic data between last year and this year should be stark.


• Continued Progress on the Virus Front. The positive rate of COVID tests has declined from 13.7% three weeks ago to 7.6% as of yesterday. The 7-day average for cases is rising in only 2 states and the average is down 47% since Jan 11th peak. Hospitalizations are down 33% since peak on Jan 6th. These are all very positive trends that we hope will continue. Johnson & Johnson is in the process of filing for approval by the FDA for their new COVID vaccine. The benefits of this vaccine are that it requires only 1 shot, which will help with distribution, and the vaccine can be stored as normal in a refrigerator. It is estimated this vaccine will be ready for distribution by the end of the month. Meanwhile, the U.S. leads the world with 33.8 million shots of the vaccine administered so far. This week, the market took note of an emotional benchmark this week as total number of vaccinated now exceeds the total number of cases in the U.S.



• Corporate Earnings Strong and Projected Stronger. During the month of January, analysts increased earnings estimates for companies in the S&P 500 for the first quarter. The Q1 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for Q1 for all the companies in the index) increased by 3.2% (to $38.82 from $37.60) during this period. Overall, 37% of the companies in the S&P 500 have reported actual results for Q4 2020 to date. Of these companies, 82% have reported actual EPS above estimates, which is above the five-year average of 74%. In terms of revenues, 76% of S&P 500 companies have reported actual revenues above estimates, which is above the five-year average of 62%. If 76% is the final percentage for the quarter, it will mark the fourth-highest percentage of S&P 500 companies reporting a positive revenue surprise since FactSet began tracking this metric in 2008.




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