Weighing The Week Ahead: Does The Reddit Rebellion Threaten Investor Portfolios?

Good

Corporate Earnings

  • With 37% of the S&P 500 reports in, companies are beating expectations at a near-record pace. John Butters (FactSet) calculates that the year-over-year decline has now dropped to 2.3% (from 4.8% last week).

  • Brian Gilmartin highlights the positive changes in forward earnings although he cautiously notes the reaction in stock prices.

New Vaccines

The successful trial of Johnson and Johnson’s (JNJ) new one-dose vaccine will help in closing the gap to herd immunity.

Employment

  • Initial jobless claims declined to 847K beating expectations of 875K and down from last week’s 914K. Continuing claims also declined to 4.771M. The overall series remains elevated.

Bad

Economic Recovery

The stall in economic growth continues.

  • Durable goods orders grew only 0.2% in December, missing expectations of 0.7% and far below November’s 1.2% gain.
  • Personal income and spending for December were mixed. Income was up a surprising 0.6% after November’s 1.3% decline. Spending declined 0.2%, butter than the expected decline of 0.5% and November’s downwardly revised -0.7 %. The changing stimulus payments make it challenging to interpret this data series.

Coronavirus and Vaccine Distribution

  • The virus remains at near-peak levels.
  • Vaccine distribution is beset by problems. Even when vaccine is available, getting an appointment or a second appointment can be a frustrating challenge.
  • Scare stories. Suppose you give the vaccine to thousands of elderly celebrities. Would you expect any of them to die? Suppose it is taken by millions of people with a 95% rate. Would you expect any of them to get the virus anyway? 

Calendar

We have a huge calendar featuring all manner of reports on employment and including the widely followed ISM updates on both manufacturing and non-manufacturing. We continue through the peak of earnings season. And finally, eyes will be on Washington as the proposed pandemic relief package works its way through the legislative process. Or not.

Briefing.com has an excellent weekly calendar and many other useful features for subscribers.

Theme and comment

Just as investors were assessing the impacts of the pandemic, business closures, and a recession, a new source of worry appeared. Since it was unanticipated, should it be called a “black swan?” Whatever the label, investors are wondering: Is the Reddit Rebellion a threat to my investments?

Background

Most people find the daily investment report to be boring. It is a compressed “explanation” of what happened in financial markets and, supposedly, why.

This week was different. There was real drama: rich versus poor, underdogs versus giants, massive winnings for ordinary people while hedge fund billionaires were on the run. This includes the key ingredients for a compelling story, launching a familiar pattern.

Financial event becomes a general news story.

Every publication needs to publish on the topic.

Informed analysis, on a proportional basis, decreases.

Interesting speculation and half-baked analyses move to the fore.

Analysis

The most effective way to proceed is to highlight some of the stories from the week and then offer a comment.

What happened? CNBC has a good summary of the week’s events including this chart:

Does the rebellion have a leader? Yes.

Famed GameStop bull ‘Roaring Kitty’ is a Massachusetts financial advisor.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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