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Major market indexes were down slightly last week. Investors have fastened their seatbelts in anticipation for the final quarter of 2020 earnings reports. If that’s not enough to deal with, investors continue to worry about rising Covid-19 infections and deaths as well as the continued chaos from the U.S. Capitol siege two weeks ago and reports of possible more violence when president-elect Biden is sworn in.

Earnings reports are just getting underway. So far, financial institutions JP Morgan and Blackrock have beaten estimates significantly while Wells Fargo and Citigroup failed to meet expectations. For insight into what we might expect for the rest of the quarter, we turn to FactSet.

The S&P 500 is expected to report an aggregate earnings decrease of 6.8% for the final three-months of 2020. Will that actually happen or might they come in better-than-expected? Let’s see what history tells us.

It is likely the S&P 500 will report an earnings decrease for the fourth quarter, however, if companies repeat their unusually strong results from the second and third quarter of 2020, we might be pleasantly surprised. Looking back over the past five years, actual earnings have exceeded estimates by 6.3%. In the chart below the shaded gray bars are quarterly earnings estimates and the dark blue bars are actual earnings. You can see with the exception of the first quarter of 2020 (which took everyone by surprise) actual earnings have come in better than expected. We’ll keep a close eye on things as more reports are released over the coming weeks and keep you updated.

If you have any questions, please contact me.

The Markets and Economy

Car sales in China declined 6.8% last year. The world’s largest market for automobiles saw sales shrink for the third consecutive year.
The global pandemic and trade tariffs weren’t enough to slow down China’s economic engine last year. Officials in Beijing reported exports for the 2020 rose 3.6% from a year earlier.
Job losses in 2020 were the worst since 1939. Last year, the U.S. lost 9.37 million jobs. This far exceeds the 5.05 million jobs lost in 2009. Those affected most were Hispanics, Blacks, teenagers and high-school dropouts. Hardest hit industries were hotels, restaurants and other travel/leisure related businesses. Also, jobless claims rose by the most in a single week since March, 2020. Applications for unemployment benefits rose by 181,000 to 965,000 according to the Labor Dept.
A growing wave of big businesses are deciding whether to suspend their political donations in the wake of last week’s riot at the U.S. Capitol building.
Got lower rates? Through September 30, 2020, approximately 65% of mortgage loans originated were refinances of existing mortgages.
The Fed is buying $120 billion of bonds each month. $80 billion of those purchases are U.S. Treasury debt and $40 billion are mortgage-backed securities. The Fed confirmed that the purchases will continue “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals”.
Las Vegas has the highest unemployment rate of any major U.S. city. As of November, 2020, the rate stood at 11.5%. The city depends heavily on the convention and trade-show business which has dried up.
Consumers reduced spending during the last few weeks of the holiday selling season. Retail sales, which includes purchases in stores, online and in restaurants declined a seasonally adjusted 0.7% in December. This was the third consecutive month of declines.

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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. Imvestment 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 January 19th, 2021

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Getting Ready for 4th Quarter Earnings Reports