25th January 2021

Good morning,

As the global economy continues to recover from the depths of the COVID-19 induced shock, some of the key themes influencing markets endure. Earnings expectations are high as almost a quarter of the S&P 500 are due to report this week. Irrespective of the numerous headline grabbing events so far this year, it is always worth remembering that earnings drive profits which drive share prices. Another enduring theme is that of accommodative monetary policy, with no change last week from the ECB (more info below) and none expected this week from the U.S. Federal Reserve.

The stock market rotation towards small cap and value reversed last week (at least for the time being) and it remains a key talking point for market participants. We addressed this in our recent Investment Outlook stating that ‘In relation to stock rotation, dispersions can persist for long periods, however the reversal of trends can be swift and with large impacts. Therefore, a flexible approach is required.’

Weekly Investment News
Markets rose last week but were off record highs as investors weighed the short-term negativity with the potential for a more positive medium to long term outlook. Joe Biden was sworn in as the 46th U.S. President as stocks remain on their best post-election run since prior to World War II. Negotiations in relation to the proposed $1.9 trillion stimulus plan look set to continue, as Democrats also announced that the Senate trial for President Trump’s second impeachment is due to begin on 9th February. Netflix rose sharply as results showed higher than expected new subscriptions in Q4 2020. Facebook and Alphabet were also strong as oil stocks fell as U.S. inventory levels were higher than expected.

Trading volumes in general were above average as individual retail investors continue to participate. U.S. markets were closed on Monday and economic news overall was light. However, there was continued positive news from the U.S. housing market as starts were up 5.8% in December, the strongest pace since 2006 and existing home sales were up 0.7%. Within Europe the composite PMI moved below the key 50 point mark in January as a positive manufacturing reading (54.7) was offset by a negative 45.0 figure from the services sector.

As per the above, eurozone economic data has been trending downwards in recent months as the return to lockdown for large swathes of the population weighs on business activity. The ECB made no change in policy last week but did emphasise its flexible approach to the evolving backdrop as COVID-19 continues to hold Europe in its grip.

Leave a Reply