Many Sectors Are Primed For Another Breakout Rally – Are You?

As we start moving into the Q1:2021 earnings season, we need to be aware of the risks associated with the volatility often associated with earnings data and unknowns. Nonetheless, there are other factors that appear to be present in current trends which suggest earnings may prompt a moderately strong upside breakout rally – again.

One key factor is that the US markets are already starting to price in forwarding expectations related to a reflation economy – a post-COVID acceleration in activity, consumer participation, and manufacturing. Secondarily, we must also consider the continued stimulus efforts, easy monetary policy from the US Fed, and the continued trending related to the 12+ month-long COVID-19 recovery rally. 

In some ways, any damage to the economy related to COVID-19 may have already happened well over 6+ months ago. Certainly, there are other issues we are still dealing with and recovering from, but the strength of the US economy since May/June of 2020 has been incredible. When we combine the strength of the economic recovery with the extended support provided by the US Fed and US government stimulus/policy efforts, we are left with only one conclusion: the markets will likely continue to rally until something stops this trend.

Just this week, after stronger inflation data posted last week, and as earnings data starts to hit the wires, we are seeing some early signs that the US major indexes are likely to continue to trend higher – even while faced with odd earnings data. If this continues, we may see the US major indexes, and various ETF sectors, continue to rally throughout most of April – if not longer.

Today, Aphria (APHA), announced a third-quarter “miss” on sales, and net operating loss fell more than 14%. This tugged many Cannabis-related stocks lower and pulled the Alternative Harvest ETF (MJ) lower by over 4%. Still, the Transportation Index, Financial sector ETF (XLF), and S&P500 SPDR ETF (SPY) rallied to new all-time highs.

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