Weighing The Week Ahead: What Will Biden Proposals Mean For Investors?

Smile, Politician, Man, Adult, Male, Joe Biden, Cut Out

We have a light, holiday-shortened week ahead. There are several reports on housing, but everyone will be focused on the Inauguration and hopes for a peaceful transition of power. Anyone with skin in the game will be asking: What does a Biden Administration mean for my investments?

Last Week Summary

In my last installment of WTWA, I suggested the need for substantial earnings growth to justify stock valuations. I also introduced Springtime Blossom Indicators – what we really need to monitor in our search for progress. It is a good reference, particularly the “What to Watch” column. I will update it when there is an interesting change. 

Key Charts

I always start my personal review of the week by looking at some great charts. This provides a foundation for considering news and events. Whether or not we agree with Mr. Market, it is wise to know his current mood.

Market Story

I am featuring Jill Mislinski’s chart of the market week. Her approach combines several key variables in a simple readable format.

Sector Trends

Sector movement is another important clue to market trends.

Once again, Juan Luque provides us with some words of wisdom from the Incline trading desk:

In a week to that will go in the history books, a U.S. President was impeached twice. The S&P 500 was down almost 1.5%. Investors received with optimism President-elect Joe Biden’s stimulus plan but realize its approval still has ways to go. With recent weak jobs data, there is increased urgency to support the slow economic recovery. Energy once again set the pace, moving into the leading quadrant with a 3.13% weekly gain. Its momentum is significantly stronger than any other sector in the index. The financial sector was mostly flat and maintained its position in the leading quadrant. It is still the only sector in green color. All remaining sectors were down for the week except for Utilities and Real Estate, which remain in the lagging quadrant shown in reddish font.

Comment

The market lost 1.5% on the week with a trading range of only 2.0%. You can monitor the continuation of lower volatility in my Indicator Snapshot, featured in the Quant Corner below.

Noteworthy

Do we care about what the experts see coming in the year ahead? The Visual Capitalist has the right attitude with this 2021 Bingo Card. Which line would you choose? Without knowing the course of the pandemic these guesses are even tougher than usual.

The News Overview

Each week I break down events into good and bad. For our purposes, “good” has two components. The news must be market friendly and better than expectations. I avoid using my personal preferences in evaluating news – and you should, too.

My continuing assessment is that many of the normal economic indicators are not helpful in the wake of the COVID lockdown decline. Too many sources are focused on a change in direction, even if very modest, which has painted an overly optimistic picture. As the economy stalls, there will be a rapid switch in the diffusion indexes. The early signs are emerging. I expect some dramatic shifts over the next month or so.

Good

Corporate Earnings

Early reports have been strong. John Butters (FactSet) summarizes as follows:

Of the 26 S&P 500 companies that have reported actual earnings for Q4 2020 to date, 96% have reported actual EPS above the mean EPS estimate. In aggregate, actual earnings reported by these 26 companies have exceeded estimated earnings by 26.2%. Thus, at this very early stage of the Q4 earnings season, the performance of earnings relative to estimates is trending closer to the numbers of the previous two quarters rather than the five-year average. Since December 31, the earnings decline for the S&P 500 has improved by 2.4 percentage points (to -6.8% from -9.2%).

Guidance is also strong going into the quarterly reports. This is worth close monitoring. (Brian Gilmartin).

Inflation

Last week I cited the increase in inflation expectations. This week, at least as measured by the CPI and PPI we see some significant price increases. One month does not a trend make, but this is attracting some attention. The increase in the core rate remains mild.

  • CPI for December increased 0.4%, in line with expectations but higher than November’s 0.2%. The core rate was much better, increasing only 0.1%.
  • PPI for December increased 0.3%, a bit better than expectations of 0.4%, but worse than Octobers 0.1%. Once again, the core increase was only 0.1%.
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Disclosure: 

If you have not already done a review of your current portfolio – asset allocation, sector exposure, and risk – you are behind schedule! I will soon have a new ...

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