One of the towers that were holding this market up was destroyed last week when the Georgia Senate race was won by the Democratic Party. There is a short-term benefit to the market as it now expects historical stimulus to be given to the people. However, policy risk for the SP 500 earnings should now be in front of everyone’s mind. This Risk is now on the table where it was not two weeks ago.
The stimulus may not be as easy as President Elect Biden snapping his fingers. Congress must authorize it and there are some in Congress that do not thing that massive stimulus is the answer.
Inflation that is caused by the massive stimulus that has been promised will be countered erroneously by The Fed raising interest rates. As we can see below, the rates are already raising on the 10-year note. Will this curb inflation. NO. Why? Inflation is the decline of the purchasing power of currency over time. Adjusting the interest rate will for sure impact inflation in the short run, but in the long run, more money in the economy, it will cost more for goods and services. This is the silver stake for the market. If interest rates raise to quickly, that will kill the market.
I never like to talk inflation without mentioning that deflation is more likely to hurt an economy. Deflation occurs with the purchasing power of money increases but there is nothing to buy.
This rally will not end this week, but there are risks out there that were not there a couple of weeks ago. None of the additional risks were retired either. Bottom line, the medium- and long-term outlook remains good.
Happy Monday. Good Luck out there this week.
Global Spotlight
Congressional fallout from the breach of the U.S. Capitol. U.S. President Donald Trump’s role in the Jan. 6 takeover by right-wing protesters will remain in the spotlight even though his term will soon expire.
Possible U.S. tariffs on Vietnam. The comment period on two U.S. Section 301 investigations — the same sort used to place tariffs on China — into Vietnam’s currency practices and timber industry ends Jan. 7.
Washington’s plans to open a consulate in Western Sahara tied to the U.S. Mission to Morocco. The United States reportedly plans to open a consulate building in Dakhla, Western Sahara, on Jan. 10 following the Dec. 10, 2020, U.S. recognition of Morocco sovereignty over the disputed territory.
Lockdowns return to Europe. European countries are starting 2021 with renewed, and in some cases tighter, social distancing measures to deal with a rising number of COVID-19 infections.
Stratfor.com
Economic Calendar
Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.
Important economic readings ahead
- CPI
- Retail Sales
- Industrial Production
Briefing.com
Last Weeks Numbers
Review Last weeks numbers here.
Earnings
Source I/B/E/S data from Refinitiv
Aggregate Estimates and Revisions
- 20Q4 earnings are expected to be -9.8% from 19Q4. Excluding the energy sector, the earnings growth estimate is -6.6%.
- Of the 18 companies in the S&P 500 that have reported earnings to date for 20Q4, 100.0% have reported earnings above analyst expectations. This compares to a long-term average of 65% and prior four quarter average of 76%.
- 20Q4 revenue is expected to be -1.3% from 19Q4. Excluding the energy sector, the growth estimate is 1.8%.
- During the week of January 11, ten S&P 500 companies are expected to report quarterly earnings.
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