A Message In A Bottle | Daily Market Update

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Tuesday, February 2, 2021

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New Street View Video Delivers A Message In A Bottle

LPL Research Chief Investment Officer Burt White contends there is one metric above all others that may tell us how well the economy is doing. “Message In A Bottle” is approved for clients.

Daily Insights

US stocks set for second straight rally as retail trading frenzy subsides

  • European markets are broadly higher in midday trading as EU economy contracts less than expected.
  • Eurozone gross domestic product (GDP) shrank 0.7% during the fourth quarter versus Bloomberg consensus forecast of 0.9%.
  • Asian stocks are higher; Taiwan outperforming on global tech rally.

Tight credit spreads create additional interest rate risk for investment-grade corporates

  • Investment-grade corporate bonds can be sensitive to changes in Treasury yields, but if credit spreads narrow when Treasury yields rise it creates a buffer against rate risk.
  • Credit spreads are narrow right now, limiting the ability of further compression to act as a buffer if Treasury yields were to continue to rise.
  • An improving economy is supportive of investment-grade corporates and we still see incremental value over Treasuries due to the extra yield they offer, but have grown more cautious.

US households’ improving debt burden. US households have certainly been through a lot in the 21st century, from a housing crisis to a global pandemic, but household debt burdens have improved dramatically in the last 15 years. Kicking off LPL Research’s “Debt Week,” we take a closer look at household debt in today’s LPL Research blog.

GameStop set to plunge. Recent data shows a significant drop in the number of shares sold short.

  • GameStop fell 31% yesterday after gaining 400% last week and is down another 40% pre-market today.
  • Traders moved their sights to silver, as the next short squeeze candidate, as the metal gained 9.3% yesterday (the best day since March 2009) and moved to its highest level since 2013.
  • To stem the rally, the Chicago Mercantile Exchange (CME) increased margins. Silver is down more than 5% this morning.

Republicans’ $600 billion stimulus proposal rejected but starts negotiating process.

  • 10 Republican senators spoke with President Biden on Monday about a slimmed down $600 billion bi-partisan stimulus bill, countering Biden’s $1.9 trillion initial proposal. While the proposal was rejected, it set the terms for negotiations.
  • Democrats will have to decide whether to pursue a bi-partisan compromise bill, potentially followed by further stimulus through the reconciliation process, or focus on reconciliation.

Technical update

Stocks roared back Monday, with the S&P 500 Index gaining 1.6% and the Nasdaq advancing 2.6%. Breadth was far superior to Thursday’s short-lived rally, as advancers outnumbered decliners on the NYSE by more than 5:1, the best reading since December 15. With the advance, the S&P 500 moved back above its 50-day moving average, after closing just below it on Friday for the first time since early November.

COVID-19 news

The United States reported 119,000 new COVID-19 cases on Monday, down 10% week over week (source: COVID Tracking Project).

  • The US is administering 1.3 million vaccine doses per day on a 7-day average (source: Bloomberg)
  • Fatalities in the United Kingdom (UK) rose to the second-highest level of the pandemic after a severe second wave.

LPL Research in the Media

LPL Research’s Jason Hoody Vice President, Manager Research, discusses sustainable investing in an interview for Financial Advisor Magazine’s article “Worker-Friendly Companies Are Market Winners, LPL Says.”

GameStop: What Does It Mean?

This week’s Market Signals podcast discusses the recent short stock frenzy, a positive earnings season, and how the Super Bowl has historically impacted stocks. Watch Market Signals: GameStop: What Does It Mean?

 

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