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MARKET COMMENTARY

January 22, 2021

Markets Rally on Earnings and Anticipated Stimulus

January 22, 2021

Joe Biden became the 46th president of the United States this week and his inauguration fueled a continuation of the market’s rally on hopes that a large coronavirus and stimulus package will soon be passed by a Democratic-controlled Congress. While U.S. economic data was generally light this week, with housing starts and existing home sales being the highlights, a strong start to the Q4 2020 earnings season had investors feeling bullish. In overseas news, China released GDP figures showing the economy continued to rebound from the pandemic slowdown, while the Eurozone’s composite PMI figures showed economic activity weakening in January. Overall, the S&P 500 added 2.00% on the week.

Housing Sizzles Despite Cooler Weather

The housing market remained strong in December, defying the historical trend of moderating buying activity during cooler seasons. Housing starts rose 5.80% to a seasonally adjusted annual rate of 1.669 million units, while permits for future homebuilding rose 4.50% to a rate of 1.709 million units in December. Single-family homebuilding, the largest share of the housing market, was particularly strong, soaring 12% to a seasonally adjusted annual rate of 1.338 million units. December marked the eighth consecutive increase in single-family starts. The existing home sales market also saw incredible demand, rising 22% from the year ago period. Sales for the full year hit 5.64 million units, their highest level since 2006. The rise came despite a 12.90% year-over-year increase in the median price of an existing home, which hit $309,800 to become the highest December median price on record. Prices continued to push higher due to limited inventory, with just 1.07 million homes for sale at the end of 2020. At the current sales pace, this represents just a 1.9-month supply and it is significantly below the six-to-seven months supply considered to be a healthy balance between supply and demand. Housing has been strong for quite some time but the pandemic has thrown the sector in to high gear, unlocking demand from buyers seeking more amenities and personal space while historically low interest rates have made purchasing a home more attractive.

China’s Economy Expands in 2020

China has managed to overcome its coronavirus-induced slump. Despite a 20% drop in industrial production and a 30% drop in retail and food services at the start of the pandemic, the economy ended the year on a strong note, growing 2.3%. China’s resurgence has been assisted by strong global demand for Chinese exports, particularly medical, electronic, and home furnishing goods, while domestic public works and infrastructure spending have supported the country’s industrial sector. China’s consumer demand has been slower to rebound but with COVID seemingly contained in China, and as vaccination expands, the Chinese economy appears poised for a stronger 2021. 

Eurozone Struggles Amid Coronavirus Surge

Eurozone business activity took a hit once again amid tighter restrictions to contain the surge in coronavirus cases. The IHS Markit Flash Composite PMI fell to 47.5 in January, down from December’s 49.1. Numbers above 50 signal economic growth, while numbers below 50 signal contraction. The continued weakening was driven by forced closures of hospitality and entertainment venues which more than offset continued strength in the manufacturing sector. The latest figures further strengthen the case for a double-dip recession for the eurozone as tight restrictions look set to remain in place at least through mid-February in most of the economic bloc.

Although still early, earnings are off to a strong start. Of the 66 companies in the S&P 500 that have reported earnings to date, 87.9% have beat analyst expectations according to I/B/E/S data from Refinitiv. That’s above the long-term average of 65% and the prior four quarter average of 76%. Looking ahead to Q1 2021, earnings are forecast to rise 18.1% from a year ago. It should be noted that this is in comparison to a terrible Q1 2020, so the growth rate is not as impressive as it might otherwise seem. Still, optimism is the overwhelming emotion in the market presently, and there are reasons to be so. There is a strong possibility a massive stimulus bill will be passed which should juice the economy over the short-term, and interest rates remain incredibly low – converging at a time when economic activity begins to accelerate. It is hard not to believe markets will go higher when you’ve got monetary and fiscal stimulus and a load of pent-up demand. The overwhelming consensus on Wall Street is that since conditions will be better a year from now, you’ve got to buy the dips, but a lack of any sustained selling since April has yielded a complacency with valuations that, frankly, are not very attractive. So while markets probably continue to go higher from here, we’d differentiate that from us being bullish on why they might. 

The Week Ahead
It will be a big week for the U.S. economy as the Federal Reserve holds it first FOMC Meeting of 2021. We also get our first read of Q4 2020 GDP.
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Taco Cat

This week marked the beginning of a series of palindrome dates which are dates that are read the same way forward and backward. Beginning January 20, 2021 or 1-20-21, and ending ten days later on 1-29-21, the dates are mirrored when written in a five-digit format. Wednesday’s date is also a seven-digit palindrome date when written as 1-20-2021. According to the Farmers’ Almanac, Wednesday, January 21, 2021 was the first Inauguration Day in American history to fall on a rare seven-digit palindrome date, with the next one occurring in 1,000 years on January 20, 3021.
 
This year is filled with a total of 22 palindrome dates. There are only two years in a century where this can happen: the years ending in 11 and years ending in 21, so it previously occurred in 2011. In the next century, it will occur in 2111 and 2121. In addition, yesterday at 9pm, it was the 21st hour of the 21st day of the 21st year of the 21st century. Wow! By the way, “wow” is a palindrome word. Another series of palindrome dates will begin later this year starting on 12-1-21 and continuing until 12-9-21.
 
As mentioned above, palindromes can also be a word or words, such as taco cat, madam, racecar, level, nurses run, kayak, civic, radar, solos, tenet, and yay. They can be phrases, such as rats live on no evil star, never odd or even, borrow or rob, and a man, a plan, a canal, Panama. And since we are on a roll here, palindromes include names like mom, dad, Bob, Otto, and Hannah, as well as sentences such as, “Was it a bar or a bat I saw?” and “Too hot to hoot.” The word palindrome comes from the Greek words “palin” which means “again, back” and “dromos” meaning “running” according to Dictionary.com. A palindrome, then, is a word or phrase that runs back on itself.
 
There was already one palindrome date this year prior to our current 10-day stretch that occurred on 1-2-21. Below are the palindrome dates for this year.
  • 1-2-21
  • 1-20-21
  • 1-21-21
  • 1-22-21
  • 1-23-21
  • 1-24-21
  • 1-25-21
  • 1-26-21
  • 1-27-21
  • 1-28-21
  • 1-29-21
  • 12-1-21
  • 12-2-21
  • 12-3-21
  • 12-4-21
  • 12-5-21
  • 12-6-21
  • 12-7-21
  • 12-8-21
  • 12-9-21
  • 12-11-21
  • 12-22-21
Dr. Aziz Inan, a professor at the University of Portland, Oregon has been studying palindromes for more than a decade. He notes that this year includes one four-digit palindrome – which occurred on 1-2-21, along with 19 five-digit palindromes, and two six-digit palindromes. Last year, February 2, 2020 was considered a global palindrome because it is exactly the same written both in the U.S. standard of month-day-year (MM/DD/YYYY) as well as the day-month-year format (DD/MM/YYYY) used elsewhere. It also worked for nations where the year comes first, 2020/02/02. The eight-digit palindrome on 02-20-2020 was also the 33rd day of the year with 333 days remaining. We will get another eight-digit palindrome on 12-02-2021. Dr. Inan has calculated all of the palindrome dates for the 21st century. You can find them here.
 
We can’t resist sharing a few more, including “a nut for a jar of tuna” and “murder for a jar of red rum.” We’ll end with this palindrome list of naughty people:
 
Dennis, Nell, Edna, Leon, Nedra, Anita, Rolf, Nora, Alice, Carol, Leo, Jane, Reed, Dena, Dale, Basil, Rae, Penny, Lana, Dave, Denny, Lena, Ida, Bernadette, Ben, Ray, Lila, Nina, Jo, Ira, Mara, Sara, Mario, Jan, Ina, Lily, Arne, Bette, Dan, Reba, Diane, Lynn, Ed, Eva, Dana, Lynne, Pearl, Isabel, Ada, Ned, Dee, Rena, Joel, Lora, Cecil, Aaron, Flora, Tina, Arden, Noel, and Ellen sinned.

 

 
 

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