Weekly Market Guide
January 15, 2021
Review the latest portfolio strategy commentary from Mike Gibbs, managing director of Equity Portfolio & Technical Strategy.
Short-Term Summary
Since breaking out to new highs in November, the S&P 500 has continued to glide higher through the seasonally strong period of the year. Enormous strength from the most risk-on areas during this time frame was triggered by positive vaccine news in early November, allowing for optimism toward an economic reopening in 2021. Technical momentum toward the reflation trade remains strong with added support in recent days from positive vaccine news (Johnson&Johnson early vaccine study) and reports that President-elect Biden is set to unveil a ~$2T fiscal stimulus package tonight (on top of the $900B in relief passed a few weeks ago). The unprecedented amount of both fiscal and monetary stimulus remains supportive of equity markets in our view.
Eventually, the market will need to digest this strength but, for now, the trend remains your friend. The S&P 500, along with some of the more cyclical areas (i.e. small caps, banks, equal weight consumer discretionary), have been able to trade above their 20-day moving averages since early November. We will be monitoring price action around this level for potential cracks in the short term trend that may lead to an eventual digestion period. But for now, short term momentum remains strong. Supporting this view of underlying equity market momentum is continued relative strength in the banks vs. utilities, as well as consumer discretionary vs consumer staples.
Fundamentally, Q4 earnings season unofficially kicks off on Friday with several of the large banks. Consensus estimates reflect -10.3% S&P 500 earnings growth on -2.2% sales growth for the quarter. The best earnings growth is expected to come from the Materials, Health Care, and Technology sectors. Q2 and Q3 earnings results saw over 80% of S&P 500 companies beat their bottom-line estimates (well above the 15-year average of 68%), as analyst estimates proved too low in the initial stages of the recovery. Solid momentum in economic data throughout Q4 bodes well for companies beating Q4 earnings estimates in our view.
Not only did a large amount of companies beat their estimates in Q2 and Q3, but they did so by historical margins (results finished an enormous 23.6% and 19.3% above estimates respectively- largest on record). We expect a strong Q4 earnings surprise above the historical average of 4.5%, but less than the historically strong Q2 and Q3. In fact, 19 S&P 500 companies have announced Q4 results early with an earnings surprise of 11.5%. This supports our above consensus earnings estimate for 2021 of $175, as estimate revisions continue to trend higher. With the market run-up in recent months on optimism for 2021, it will be interesting to assess how stocks react to Q4 results (i.e. the bar could actually be set high). Nevertheless, we remain positive on the economic and fundamental recovery in 2021 and would use pullbacks in favored sectors and stocks as buying opportunities.
IMPORTANT INVESTOR DISCLOSURES
This material is being provided for informational purposes only. Expressions of opinion are provided as of the date above and subject to change. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct.
Links to third-party websites are being provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any third-party website or the collection or use of information regarding any websites users and/or members.
This report is provided to clients of Raymond James only for your personal, noncommercial use. Except as expressly authorized by Raymond James, you may not copy, reproduce, transmit, sell, display, distribute, publish, broadcast, circulate, modify, disseminate, or commercially exploit the information contained in this report, in printed, electronic, or any other form, in any manner, without the prior express written consent of Raymond James. You also agree not to use the information provided in this report for any unlawful purpose. This report and its contents are the property of Raymond James and are protected by applicable copyright, trade secret, or other intellectual property laws (of the United States and other countries). United States law, 17 U.S.C. Sec. 501 et seq, provides for civil and criminal penalties for copyright infringement. No copyright claimed in incorporated U.S. government works.
Index Definitions
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.
The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ.
The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market.
The MSCI World All Cap Index captures large, mid, small and micro-cap representation across 23 Developed Markets (DM) countries. With 11,732 constituents, the index is comprehensive, covering approximately 99% of the free float-adjusted market capitalization in each country.
MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 21 developed nations.
MSCI Emerging Markets Index is designed to measure equity market performance in 23 emerging market countries. The index’s three largest industries are materials, energy, and banks.
Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.
International Disclosures
For clients in the United Kingdom:
For clients of Raymond James Financial International Limited (RJFI): This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in the FCA rules or persons described in Articles 19(5) (Investment professionals) or 49(2) (high net worth companies, unincorporated associations, etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended)or any other person to whom this promotion may lawfully be directed. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is, therefore, not intended for private individuals or those who would be classified as Retail Clients.
For clients of Raymond James Investment Services, Ltd.: This document is for the use of professional investment advisers and managers and is not intended for use by clients.
For clients in France:
This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in “Code Monetaire et Financier” and Reglement General de l’Autorite des marches Financiers. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is, therefore, not intended for private individuals or those who would be classified as Retail Clients.
For clients of Raymond James Euro Equities: Raymond James Euro Equities is authorised and regulated by the Autorite de Controle Prudentiel et de Resolution and the Autorite des Marches Financiers.
For institutional clients in the European Economic rea (EE ) outside of the United Kingdom:
This document (and any attachments or exhibits hereto) is intended only for EEA institutional clients or others to whom it may lawfully be submitted.
For Canadian clients:
This document is not prepared subject to Canadian disclosure requirements, unless a Canadian has contributed to the content of the document. In the case where there is Canadian contribution, the document meets all applicable IIROC disclosure requirements.
Broker Dealer Disclosures
Securities are: NOT Deposits • NOT Insured by FDIC or any other government agency • NOT GUARANTEED by the bank • Subject to risk and may lose value
Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. Raymond James Financial Services, Inc., member FINRA/SIPC. Raymond James® is a registered trademark of Raymond James Financial, Inc.