• Scott Poore

Emotions Instead of Fundamentals

Markets were mixed last week as investors are searching for something to give them direction. The COVID stimulus package that has been promised for weeks is set to finally be taken up by the House of Representatives this week. Markets don't like uncertainty and the promise of $2,000 stimulus checks has eroded into $1,600 checks and now $1,400 checks. Meanwhile, the interest rate on the 10-year Treasury has risen 84 basis points since the low on Aug. 4th of last year. Commodity prices have spiked - Cotton futures are at levels not seen since 2018, Copper has hit highs not seen since 2011, and until last week, Oil was following suit. This has markets spooked a little.


In addition, markets are not trading on fundamentals. So far, 83% of S&P 500 companies have reported Q4 earnings and 79% have beaten expectations. Typically, the S&P 500 Index shows returns on earnings surprises of +0.9%, but has responded with -0.1% returns on surprises this quarter. While Jobless Claims rose last week as states slowly re-open, the overall economic releases were positive last week. Manufacturing, Housing, and Retail Sales were welcomed surprises. Instead, what markets seem to be fretting is rising inflation numbers, higher interest rates, and a lack of stimulus as states try to re-open. A freeze in the South-Southwest didn't help matters either last week. Pipelines for oil and natural gas were frozen, causing disruptions in supply.


COVID numbers continue to plummet and provide a nice backdrop for states to re-open - that is, if they are "following the science." From the January peaks, Cases are down 74%, Hospitalizations are down 58%, and Deaths are down 43%. The Positivity Rate for daily testing has reached 4.8%, which is the first time it has been that low since October. The current rate of vaccinations is helping with 1.5 million shots being administered daily. With 43.6 million shots having been administered and 18.9 million people fully vaccinated, Johnson & Johnson's vaccine (up for FDA approval this week) will speed up the process considerably. All the markets and the economy really need is for states to re-open and return to normal economic function.


Click below to access this week's Market Recap.


Market Recap_online 02_22_21
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