Tuesday, February 9, 2021
LPL Research Says It’s Time for an Upgrade
In this week’s Market Signals podcast and video, Ryan Detrick and Jeff Buchbinder analyze the continued resiliency of the US economy and provide strong reasons for increasing their forecast for growth and corporate profits after stocks bounced back big time last week.
US stocks take a breather after advancing for the first six days of the month
- European markets are mixed in midday trading with the United Kingdom again outperforming, a reversal of last week’s trend.
- Asian stocks are mostly higher overnight with China outperforming ahead of Friday’s Lunar New Year holiday; Korea is the lone decliner.
Small business optimism declines
- The National Federation of Independent Business’ (NFIB) Small Business Optimism Index reached an eight-month low, driven primarily by deteriorating economic conditions and expectations of a less business-friendly policy environment.
- Expectations for better business conditions are at their lowest level since 2013.
- We continue to view small businesses as a bellwether for the economy and will continue to monitor how policy may be impacting small businesses’ ability to rebound from the pandemic.
Inflation debate rages, but inflation itself remains calm
- The 10-year breakeven inflation rate, a market-implied measure of inflation expectations, has reached its highest level since 2014 but remains relatively tame at around 2.2%.
- Core inflation, as measured by the Consumer Price Index (CPI) excluding food and energy, has averaged under 1.5% over the past four months.
- We do expect inflation to pick up, helped by stimulus efforts and a rebounding economy, but we don’t expect core inflation to push above 3%. We believe it is more likely to settle into the 2-2.5% range by the end of 2021 after rolling off pandemic-related distortions.
Earnings season continues to impresses
Fourth quarter earnings season has been outstanding, a key reason why we raised our 2021 earnings and stock market forecasts on Monday.
- Energy stocks led a broad based rally Monday that saw the S&P 500 Index close above 3900 for the first time ever.
- More than 17% of the index components hit a new one-month high, the best reading since January 20 and now 83% of stocks in the S&P 500 are trading above their 10-day moving average, the strongest since mid-November.
- The United States reported 78,000 new COVID-19 cases on Monday, a 35% week over week decline as infection rates continue to decline (source: COVID Tracking Project).
- Hospitalizations continue to decline, with the cumulative total of those currently hospitalized on the brink of falling below 80,000 for the first time since November 2020.
- New daily COVID-19 deaths in the US are at their the lowest since early December 2020.
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