US stocks, as measured by the S&P 500 index, rose nearly two percent last week as investors remained optimistic regarding the prospects for an end of the COVID-19 pandemic in 2021 and a sustained economic recovery. This week will have no shortage of potentially market-moving events:
|Event||Expectations||Importance for Investors||Potential Surprises|
|Federal Reserve Open Markets Committee||
The FOMC will hold their January meeting on Wednesday where they are largely expected to continue to communicate monetary support for the economy in the form of near-zero interest policy and a continuation of providing liquidity through asset purchases.
Two key pillars of the market recovery that began last March have been unprecedented levels of economic support from the Federal Reserve (monetary) and the US government (fiscal).
Investors will be closely monitoring the meeting for any sign of potential divergence from the previously-communicated supportive monetary policy stance. The expectation for an extended period of near-zero interest rates has significantly aided stock prices.
Large US companies like Apple, Microsoft, Facebook, and Visa will report earnings this week, and it is expected that they will continue to confirm healthy levels of sales and earnings growth.
Technology, e-commerce, and communications companies have been relative winners during the pandemic as people switched to doing more at home. Low interest rates and durable earnings growth have led investors to pay above-average prices for many of these companies.
Any sign of potential slowing of earnings growth could create significant market volatility as investors reprice their expectations for future profitability.
Q4 2020 US Gross Domestic Product will be released this week as well as the Conference Board’s index of Leading Economic Indicators. Both are expected to show continued recovery in economic growth following the pandemic-induced recession.
Like corporate earnings above, investors have been expecting a sustained economic recovery, so these reports will confirm whether that trend remains intact.
A slowing of economic growth, particularly for future growth implied by the Leading Economic Indicator index, may impact stock prices.
Key Economic Releases This Week
|Thursday, Jan. 28||US Gross Domestic Product (quarterly change)||Q4 2020||4.2%||33.4%|
|Thursday, Jan. 28||Leading Economic Index (monthly change)||December||0.3%||0.6%|
|Friday, Jan. 29||Personal Income (monthly change)||December||0.1%||-1.1%|
|Friday, Jan. 29||Personal Spending (monthly change)||December||-0.4%||-0.4%|
|Friday, Jan. 29||PCE Core Deflator (yearly change)||December||1.3%||1.4%|
Asset Class Returns
|Category||Representative Index||YTD 2021||Full Year 2020|
|Global Equity||MSCI All-Country World||3.2%||16.3%|
|US Large Cap Equity||S&P 500||2.4%||18.4%|
|US Small Cap Equity||Russell 2000||9.8%||20.0%|
|Foreign Developed Equity||MSCI EAFE||2.5%||7.8%|
|Emerging Market Equity||MSCI Emerging Markets||7.9%||18.3%|
|US High Yield Fixed Income||ICE BofAML High Yield Bond||0.4%||6.2%|
|US Fixed Income||Bloomberg Barclays US Aggregate Bond||-0.8%||7.5%|
|Cash Equivalents||ICE BofAML 0-3 Mo Deposit||0.0%||0.5%|
Source: Morningstar as of January 22, 2021
Prices & Interest Rates
|Representative Index||Current||Year-End 2020|
|Dow Jones Industrial Avg.||30,997||30,497|
|Crude Oil (US WTI)||$51.98||$48.52|
|2 Year Treasury||0.13%||0.13%|
|10 Year Treasury||1.10%||0.93%|
|30 Year Treasury||1.85%||1.65%|
Source: Bloomberg, US Treasury as of January 22, 2021
 Source: Morningstar
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