Can’t Keep a Bull Market Down

February 5, 2021

Strong earnings and economic data spurred bulls to retake market highs this week. Tech giants Google and Amazon posted stellar earnings reports, pushing the Q4 2020 earnings “beat” rate for the S&P 500 to 84% and rallying the index to an all-time high. This was a swift turnaround for markets following last week’s volatility that spooked investors into thinking that a bigger market correction was perhaps in store. Investors were ready to move on from last week’s GameStop sideshow and refocus on fundamentals. This week we saw healthy manufacturing and services numbers for both the U.S. and China, which continue to show their resiliency, within their respective economies, to the resurgence in COVID cases. U.S. payroll growth also kicked the year off on a higher note, reversing December’s losses. Markets were resoundingly bullish for the week, pushing the S&P 500 to an all-time high of 3886.83 and a 4.65% weekly gain.

Payrolls Rise in January as Hospitality Sector Set for Recovery

After shedding 227,000 jobs in December, businesses reversed course in January, adding 49,000 to the payrolls. Job gains were concentrated in professional and business services (97,000), government (43,000), and information (16,000). As has been the case since the pandemic first erupted, the hospitality and the retail sectors continued to shed jobs, cutting 61,000 and 37,800 jobs in January, respectively. The jobless rate also fell during the month to 6.30% but this was mainly due to the labor force participation rate falling to 61.4% as more workers left the workforce. Workers in the hospitality and leisure segments have borne the brunt of the losses, with businesses reducing payrolls by 3.9 million or 22.9% since February of last year. The sector should get the proverbial shot in the arm in the coming months as vaccines roll out and Americans return to high social contact activities.

U.S. Manufacturing and Services Stay Strong

U.S. manufacturers continued to rack up orders in January with the ISM Manufacturing Index hitting 58.7. Although that was down from December’s 60.5 reading, it is well above 50 which indicates expansion in the manufacturing sector. Demand for electronics and furniture remained robust as consumers largely stayed home after socializing over the holidays and amid an early January spike in COVID cases. Manufacturers remain optimistic demand will continue to remain healthy throughout 2021, evidenced by increasing payrolls last month. The service sector also reported strong January activity as the ISM Services Index rose to a two-year high of 58.7 from 57.7 in December. Growth in new orders and an increase in employment helped drive the index higher. Strength in finance and construction sectors helped offset continued weakness in those industries impacted by social restrictions.

China Factory Floors Continue to Expand Amid Weak Global Demand

Despite weak global demand, China’s Official Purchasing Managers’ Index managed to stay above water in January, hitting 51.3. January’s reading was down slightly from December’s 51.9 led by a sharp decline in the new export order subindex, which fell to 50.2 from 51.3 in the previous month. The services sector also hung on in January with the official non-manufacturing Purchasing Managers’ Index registering 52.4, down from 55.7 in December. The services slowdown correlates with China having reimplemented lockdowns to address a new round of outbreaks. The unilateral measures, while being very strict, have proven effective in allowing the bulk of the population to regain some normality over the last several months.

Positive fundamentals inspired Wall Street this week with corporate earnings showing the U.S. economy’s resiliency despite tighter operating restrictions following the surge in COVID cases at the start of the year. With vaccines continuing to roll out and businesses set to resume normal operations later this year, the expectation is that we will see improved earnings growth through year-end. Analysts are forecasting earnings for the S&P 500 will grow to $154.78 in 2021, meaning that the index now trades at a forward P/E multiple of 25x earnings. Make no mistake, this is expensive, but with interest rates near zero, investors have very few alternatives and given the Biden administration’s strong appetite for fiscal stimulus, there is little standing in the way of bulls continuing to bid the market up.

The Week Ahead
It will be a relatively quiet week for economic data with consumer prices and jobless claims being the highlights of the week.

Go, Team!

This weekend marks an annual ritual shared by millions on the first Sunday of every February: The Super Bowl. Whether you are in it for the game, the halftime show, or the commercials, here are some facts and trivia to get up to speed on one of America’s favorite pastimes.

Defending champions the Kansas City Chiefs will play the Tampa Bay Buccaneers at Tampa on February 7, 2021. It’s the first time in the history of the Big Game that a team will play for the championship on their home turf. It’s also the first championship game starring the two most-recent Super Bowl winning quarterbacks: the Chiefs’ Patrick Mahomes who led his team to a win in 2020 and the Buccaneers’ Tom Brady who led the New England Patriots to a win in 2019. Mahomes and Brady also have the largest age gap between two starting quarterbacks in Super Bowl history — 18 years and 45 days. Mahomes is 25 and Brady is 43.

Mahomes has been playing in the NFL for four years. He was a first round pick in 2017 and tenth overall. Sunday’s game will be his second Super Bowl appearance. Tom Brady has had a 20-year NFL career with a record-setting nine Super Bowl appearances, including six wins. Not bad for a player who was drafted in the sixth round with the 199th overall selection. Brady is widely considered the greatest quarterback of all time, and yet thirty teams in the NFL passed on him in the 2000 draft. Brady left the New England Patriots last year to join Tampa Bay, a team that had not won a playoff game in 18 years.

Some are calling this weekend’s game the best Super Bowl quarterback matchup ever, and the NFL hopes that will further boost viewership. The Big Game is one of the most watched television events in the world. More than 100 million people tune into the game every year which is why it’s typically a boon to advertisers to land a spot during the broadcast. However, the pandemic has many big brands sitting out Super Bowl 55, while companies whose businesses have boomed in the pandemic will premiere their first-ever Super Bowl ads. Some of these first-time advertisers include Scott’s Miracle-Gro, promoting pandemic backyard goals, and food delivery services UberEats and Doordash, filling the dine-in restaurant void. Online marketplace Mercari and freelance site Fiverr will also debut spots on Sunday.

The Big Game is full of other firsts as well. The first woman to officiate a Super Bowl game happens this year as referee Sarah Thomas takes to the field. It will be the first paperless and cashless Super Bowl. Attendees will use their smartphones for entry with mobile tickets and for concession payments. Kiosks outside the stadium will be available for users to convert cash into gift cards for use inside.

The stadium is typically packed with tens of thousands of fans, however, the 2021 Super Bowl crowd will be limited to 22,000 people due to the pandemic, with 7,500 tickets going to vaccinated front-line healthcare workers from around the country who received free tickets. That is just one third of the stadium’s 65,000 seat capacity.

This year, Canadian artist The Weeknd will perform at the halftime show. The Weeknd, whose real name is Abel Tesfaye, is a three-time Grammy Award winner. His performance marks the 30-year anniversary of the NFL changing course from using traditional marching bands as the halftime entertainment to staging multi-million-dollar productions with contemporary music acts.

The game is set to kickoff at 6:30 p.m. ET. While the big viewing parties and game day gatherings may be scaled back this year, we hope you have an enjoyable Super Bowl Sunday. Go team!

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