Thursday, January 21, 2021
Low Mortgage Rates Add Fuel to Housing Boom
The national average 30-year fixed mortgage rate continues to decline, falling below 2.9% as the housing market remains one of the hottest areas of the economy. Learn more about the data underpinning the housing market later today in the LPL Research blog.
US stocks open modestly higher, led by Nasdaq 100
- European stocks were mostly higher with France the lone decliner.
- Asian stocks were higher with China outperforming.
- Hong Kong’s Hang Seng Index eclipsed the 30,000 mark for the first time since 2019.
Jobless claims beat estimates
The United States reported 900,000 claims for unemployment insurance last week, according to the US Department of Labor, ahead of Bloomberg consensus estimates of 935,000.
- Claims from the prior week were revised down from 965,000 to 926,000.
- Continuing claims fell 127,000 to 5.1 million.
- The continued elevation of jobless claims shows that state restrictions are still having an effect on the labor market, despite improving COVID-19 data.
US stocks favored over international despite valuation premium
The US stock valuation premium over developed international equities remains substantial.
- Developed international stocks are trading at a 22% discount to US stocks on a forward price-to-earnings (PE) basis, compared with a 25-year average discount of 4% (source: FactSet).
- Valuations for both the United States and Europe are more than 30% above long-term averages.
- Japan’s forward PE ratio remains 15% below its 25-year average and at levels we could consider attractive.
- Fundamentals and technical analysis still support our preference for US equities over developed international.
Emerging markets still attractive
Emerging markets (EM) stocks still appear attractively valued on a relative basis.
- The forward PE for emerging markets of 16.5 is 38% above its 25-year average; even though this is a 27% discount to US stocks, we still consider EM valuations attractive (source: FactSet).
- We view EM as more attractive than developed international through all three lenses of our investment process: fundamentals, valuations, and technical analysis.
- Solid EM earnings growth over the past year has kept EM valuations low despite matching the S&P 500 performance in 2020 and outperforming by 5 percentage points year to date.
Big gains on Inauguration Day
The S&P 500 Index added 1.4% for the best Inauguration Day return since President Ronald Reagan began his second term in 1985. Additionally, the S&P 500 rose 14.3% from Election Day to the inauguration, beating the previous record from the late 1920s. This was the first time in history the Dow Jones Industrial Average made a new high on Inauguration Day.
The S&P 500 broke out to a new record high on Wednesday, ending a two-week pause that began with the last record high on January 8. The Dow Jones Industrial Average, Nasdaq, and Russell 2000 Index also set new records; gains were led by the Nasdaq, which gained 2% and gapped above resistance at its January 8 high.
Market Signals Covers It All
This week’s Market Signals podcast covers all the latest events impacting markets and the economy: Q4 earnings, a new stimulus proposal, the Democratic blue wave, and President-elect Joe Biden’s new economic policy plan. Watch Market Signals: More Stimulus, New Policies, and Stellar Earnings Season.
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