Monday Morning Market Insights: Last Week in Review with Rusty Vanneman, Vol. 6

Good morning and happy Monday! Hope you stayed warm this past weekend (it’s cold out here in Omaha!) and enjoyed the Super Bowl. 

In the Markets

The stock market extended to new highs last week, having its best week since November. It rallied on more positive news due to improving economic and COVID data and more stimulus talks.  

Regarding COVID: At the current pace of the vaccine roll-out, it’s possible that three-quarters of the population could be vaccinated with at least a first dose by the end of June

Moving on to key economic data from last week, the unemployment rate came in at 6.3% for January, down from previous 6.7%. That sounded good, but payroll growth did slightly disappoint, though the market participants interpreted the data as most likely increasing the odds for additional fiscal stimulus. 

Either way, economic data is still generally surprising to the upside, as it has been since the second quarter. And that’s the stuff that helps push the stock market higher. 

Earnings season for the fourth quarter has been pretty amazing. Although the overall economy did have its worst year in nearly 80 years as measured by GDP, corporate earnings growth is now on pace for positive year-over-year growth (+2%). 

Two notable blow-out earnings reports last week came from Alphabet (GOOG) and Amazon (AMZN). The number of companies that are beating expectations is at its second best pace ever and by its third widest margins too. And it’s not just bottom line, either, as companies beating their expected revenues estimate was the best “beat rate” since 2004. Only 20% are missing their revenue expectations, the lowest “miss rate” since 2009.  The numbers just keep surprising to the upside.  Things are getting better.  

What to Expect Coming Up

The stock market is on a roll, but be prepared for even crazier numbers ahead.  We’ve had plenty of big numbers over the last year, but as we start to drop the bear market numbers from last February/March off the trailing 12-month return, we are going to witness some large positive numbers. 

We will also see some big changes in market leadership over the last year, with more cyclical fare such as small cap stocks taking a prominent role on the leadership board.   

Related to the prior point, did you know that only about 30% of stocks have currently beat the S&P over the last year? This low of a number has only happened two times before in the last 60 years: During the Nifty Fifty era of 1973-74, and at the end of the dot.com era of the late 1990s.  Yes, those were right before two epic bear markets, but those bear markets were for large cap stocks and the major indices. Small cap stocks and globally diversified portfolios performed notably better after large caps sagged. And yes, the percentage of stocks beating the S&P 500 over the trailing 12-month also skyrocketed shortly thereafter. 

Even though GameStop (GME) and other stocks that recently captured the attention of many new investors faltered last week, I still believe that this recent enthusiasm of so many new investors is a great opportunity for all of us as investment counselors to make a difference. We can educate and encourage and influence investor behavior in the right directions. It’s easy to share the enthusiasm. The stock market allows individuals to participate in global growth and help prepare for their future financial goals. We believe that to build wealth, one needs to invest and stay invested. 

Speaking of excitement, how about Tesla buying $1.5B of Bitcoin and saying it will take Bitcoin if you’re purchasing a Tesla car? 

As for what to watch for this week, there is inflation data this week and the Federal Reserve Chairman Jerome Powell talking. 

Tom Brady and Top Commercials

Let’s talk Super Bowl: How about that Tampa Bay defense? They should have won the MVP for the game, though the Brady-Gronk story is also amazing. Speaking of Brady, I didn’t know until recently how we made it to Tampa Bay

By the way, what was your favorite Super Bowl ad

Standouts for me were all about electric cars; first General Motors “No Way Norway” with Will Ferrell,  and then Winona Ryder’s Scissorhands Cadillac ad.

It was also a good college sports weekend. College basketball rankings didn’t have much change at the top, but did you know 3 of the top 6 teams are now from Texas (Baylor, Texas, Houston). Of course, the other big college sports news is that Omaha will host the entire NCAA college volleyball tournament on April 22-24. 

 

Have a great week! For more insights and commentary, visit our Financial Advisor Success Hub.

 

0439-OPS-02/08/2021

The CFA is a globally respected, graduate-level investment credential established in 1962 and awarded by CFA Institute — the largest global association of investment professionals. To learn more about the CFA charter, visit www.cfainstitute.org.

The CMT Program demonstrates mastery of a core body of knowledge of investment risk in portfolio management. The Chartered Market Technician® (CMT) designation marks the highest education within the discipline and is the preeminent designation for practitioners of technical analysis worldwide. To learn more about the CMT, visit https://cmtassociation.org/.

About Rusty Vanneman
Rusty Vanneman, CFA, CMT, serves as Chief Investment Strategist of Orion Portfolio Solutions. He has been with Orion since 2012, previously serving as President and Chief Investment Officer of CLS Investments. Prior to joining the Orion organization, Mr. Vanneman served as Chief Investment Officer and Managing Director for an RIA in the greater Boston area. His 11-year tenure at the RIA included a five-year span during which the firm was owned by E*TRADE Financial, where he also served as Senior Market Strategist for E*TRADE Capital. He also served as a Senior Analyst at Fidelity Management and Research in Boston. Mr. Vanneman received a Bachelor of Science degree in Management from Babson College, where he graduated with high distinction. He is a CFA charterholder and member of the CFA Institute. He also holds the Chartered Market Technician® (CMT) designation and is a member of the CMT Association.