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U.S. stock markets were up modestly last week as strong fourth quarter earnings continue to impress. Not only are more S&P 500 companies beating estimates than the fourth quarter average, but they are beating them by a wider margin than average too.

According to FactSet, almost three-fourths of S&P 500 companies have reported fourth quarter earnings. Of those reporting, 80% have reported earnings above estimates. This is above the five-year average of 74% beating analysts estimates. Overall on average, companies are beating estimates by over 15%. If this figure holds as the remainder of companies report earnings, it will mark the third-largest earnings surprise percentage reported by the index since FactSet began tracking these figures in 2008. This is a huge positive for U.S. equity markets and one reason the market keeps hitting new highs.

We all know how important job growth is for the economy. The chart below comes from the Labor Department and appeared in the Wall Street Journal recently. It shows just how far the U.S. economy has come back since unemployment spiked last March. It also shows how far we still have to go. The biggest takeaway from this is the concern economists have about recent employment gains levelling off and unemployment rising again. Many analysts believe this is the largest concern for the U.S. economy.

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The Markets and Economy

At the beginning of the pandemic in early 2020, state and local governments expected huge losses in tax revenue from closed businesses and many citizens unemployed. However, in many areas, the cause for concern may have been overstated. Unemployment fell and economic activity picked up more than most had anticipated across much of the U.S. Perhaps the brightest sign of activity was the continued strength of the housing market.
The Congressional Budget Office (CBO), a non-partisan entity, studied the Biden administration’s proposal for increasing the federal minimum wage to $15. They found it could deliver wage increases for 27 million workers and lift 900,000 Americans above the poverty threshold. However, the CBO reports it could also cost 1.4 million U.S. workers their jobs. The study reaffirms previous findings that such an increase could result in significant job losses.
The number of help-wanted ads returned to pre-pandemic levels in January, a sign that hiring could pick up from its sluggish pace at the beginning of 2021. The industries that have weathered the pandemic fairly well were the ones with the greatest increase in ads.
The U.K. economy recorded its biggest contraction in over 300 years in 2020 from dealing with the Covid-19 pandemic. According to the Office for National Statistics, Britain’s gross domestic product shrank 9.9% for the entire year.
Propane prices have climbed more than 70% since November, thanks to an explosion in patio heating and an uptick in exports to Asia. As restaurants pack as many diners outside as possible, demand for the by-product of natural gas drilling and crude-oil refining has exploded.
Fed Chairman, Jerome Powell, speaking in a virtual appearance before the Economic Club of New York, said the Fed is unlikely to “even think about withdrawing policy support” by raising interest rates or reducing its bond purchases for the foreseeable future.
Consumers may be feeling a bit more skittish about the economy. The preliminary estimate of the index of consumer sentiment came in at 76.2 in February, down from the 79.0 reading in January.

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The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Consult your financial professional before making any investment decision. You cannot invest directly in an index. Past performance does not guarantee future results.

Note: All figures exclude reinvested dividends (if any). Sources: Bloomberg, Dorsey Wright & Associates, Inc. and The Wall Street Journal. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Securities offered through Triad Advisors, member FINRA/SIPC. Investment advice offered through Resources Investment Advisors, LLC, an SEC-registered investment adviser. Resources Investment Advisors. LLC and Vertical Financial Group are not affiliated with Triad Advisors.

David Kover on February 17th, 2021

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