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Domestic equity markets were mostly flat last week as the yield on the 10-year treasury closed at 1.34% and the price of crude held just below $60.00 a barrel. After treasury yields stayed so low for several months, there are some concerns that inflation may be making a comeback. However, it’s only natural for some inflation to seep into the economic mix as the economy continues to improve. FactSet reports that 79% of companies reporting 4th quarter 2020 earnings are beating analysts estimates. With the stock market mostly flat last week, it appears investors need more to be impressed.

Friday, February 12, ushered in another Chinese New Year. According to the Chinese zodiac, 2021 is the Year of the Ox, or more specifically, the year of the Metal Ox, as each Lunar Year is represented by one of twelve animals and one of five base elements. The Ox is meant to represent a hardworking nature and mobility, while the metal aspect of the year points to an emphasis on metal industries. We all hope 2021 will see a significant increase in mobility as the Covid-19 vaccine is administered widely across the globe and travel returns. We also hope to see the recent gains in the industrial sector continue as the economy grows through the year. So what might this Year of the Ox have in store for us? Read on.

There have been ten years of the Ox since 1900. Six of those years saw gains in both the Dow Jones Industrial Average and the S&P 500. Also interestingly, for the three most current Year of the Ox, market returns exceeded 18% (1985, 1997, and 2009). While it would be very nice if this trend continues for this current Year of the Ox, we will continue to focus on our technical indicators for guidance. The chart below comes courtesy of Nasdaq Dorsey Wright.

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The Markets and Economy

Investors insatiable thirst for yield is fueling a Wall Street lending boom. Companies are taking advantage of the high demand as well as historically low interest rates. The challenge for investors is balancing risk with reward. Much of the newly issued debt is high-yield meaning it carries a credit rating of triple-C or lower.
Analysts are concerned 2021 could see a series of defaults from Chinese companies after a string of blowups last year. According to forecasts from JP Morgan Chase & Co. approximately 2.5% of Chinese offshore high-yield debt is likely to default sometime this year. Property developers are a big part of the Chinese offshore bond market. Global weakness in commercial real estate is expected to continue for the next several years.
The city of Philadelphia is warning of a potential $450 million budget gap for 2022 fiscal year. The shortfall is due to the pandemic and ensuing economic downturn that has devastated government coffers through the loss of tax revenue.
Walmart announced it is raising pay for 425,000 employees starting March 13. The nation’s largest employer announced the raise for store workers in its digital and stocking workgroups, taking pay above $15 an hour.
Consumers used their stimulus checks to boost retail spending in January to its largest increase in seven months, a jump that comes as manufacturers continued to increase output and employers resumed hiring. Retail sales jumped a seasonally adjusted 5.3% in January from a month earlier.
According to the Department of Commerce, for every $1.00 of goods that U.S. companies exported to Chinese buyers in 2020, American consumers imported $3.49 from Chinese manufacturers.
Existing home sales rose strongly in January. Typically, the first month of the year is one of the slower winter months for home sales. Existing-home sales rose 0.6% from the prior month.
The U.S. economy shrank by 3.5% in 2020. In contrast, the collective countries that use the euro as their main currency, known as the Eurozone, fell 6.8% in the same year.

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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 23rd, 2021

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