The Bottom Line
● January’s GameStop craze dissipated and equity volatility plunged as investors refocused on the potential for a big stimulus package, encouraging earnings results, and improving Covid‐19 vaccination and hospitalization data.
● On Friday the Labor Department reported the U.S. added 49,000 jobs in January, below the 50,000 expected by economists. December jobs were revised much lower, with the month posting a loss of 227,000 from the initial reading of 140,000 jobs lost.
● More signs of inflation are popping up in economic data. This week both the ISM and Markit Purchasing Managers Indices showed rapidly rising input costs.
Stocks rebound to new record highs
What a difference a week makes. Stocks went from their worst week since October last Friday to their best week since November this Friday – and closed at all‐time highs. The Cboe Volatility Index (VIX) tumbled to 20.9 after closing above 37 last Thursday 1/28. Despite Friday’s soft January employment report, stocks rose on the likelihood of additional stimulus, including $1,400 checks which President Biden reaffirmed on Friday. The January employment report disappointed with just 49,000 new jobs created and the prior two months of jobs were revised down by 159,000. On the positive side, the unemployment rate fell slightly to 6.3%. But investors focused more on the odds for larger stimulus following Friday’s Senate passage of a budget resolution that means a large relief package could be passed using a parliamentary process called reconciliation, which requires a simple majority vote rather than the usual 60‐vote super majority. Positive earnings surprises also bolstered investor confidence. With about 60% of S&P 500 companies reported for Q4‐2020, 82% of them have beat analysts’ estimates, compared to the average of 75%. The 10‐year US Treasury yield rose to 1.17%, near the top of its recent trading range.
Digits & Did You Knows
RELIEF DOLLARS — 36% of stimulus payment money received by Americans from the March 2020 CARES Act was put into savings, while 35% was used to pay down debt (source: Federal Reserve Bank of New York, BTN Research).
THEY VOTE THIS YEAR — Presidents of 4 of the 12 regional Federal Reserve Banks began their 1‐year rotation as voting members of the Federal Open Market Committee (FOMC) on 1/26/21. The 4 new voting members in 2021 are Charles Evans (Chicago), Mary Daly (San Francisco), Raphael Bostic (Atlanta) and Thomas Barkin (Richmond). The New York Fed President (currently John Williams) is a permanent member of the FOMC (source: Federal Reserve, BTN Research).
Source: Bloomberg. Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange‐traded funds recommended by the Prime Capital Investment Advisors. The performance of those funds may be substantially different than the performance of the broad asset classes and to proxy ETFs represented here. U.S. Bonds (iShares Core U.S. Aggregate Bond ETF); High‐YieldBond(iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (SPDR® Bloomberg Barclays International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 ValueETF);MidGrowth(iSharesRussell Mid‐CapGrowthETF);MidValue (iSharesRussell Mid‐Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares U.S. Real Estate ETF). The return displayed as “Allocation” is a weighted average of the ETF proxies shown as represented by: 30% U.S. Bonds, 5% International Bonds, 5% High Yield Bonds, 10% Large Growth, 10% Large Value, 4% Mid Growth, 4%Mid Value, 2% Small Growth, 2% Small Value, 18% International Stock, 7% Emerging Markets, 3% Real Estate.
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