Week of January 25, 2021

A rally in the U.S. equity markets last week saw all three major indices post solid gains, led by communications services and technology stocks gaining 5.4% and 4.2%, respectively.  For the week, the NASDAQ gained 4.19%, and S&P 500 almost 2% and the Dow edged up 0.5%.  To the downside, financial and energy stocks declined 1.9% and 1.6%, respectively. As a result for the week, the Dow posted its fifth positive week in the last six, while the S&P 500 its third positive week in four.

This is a big news week with a meeting of the Federal Open Market Committee (FOMC) and earnings releases from nearly 20% of the S&P 500.  Fed officials have signaled that interest rates would stay at their current near-zero levels and continue its accommodative monetary policy with aggressive asset purchases at the current rate of $120 billion per week.  They have indicated that their asset purchase program will continue until “substantial further progress” is made in the economic recovery.

“We think that it’s a very high bar to the Fed withdrawing stimulus at this point.  And of you listen to what they’re saying, they’re saying that the downside to withdrawing stimulus more quickly is much greater to the downside to keeping on stimulus perhaps a bit too long,” said Jon Adams, senior investment strategist at BMO Capital Markets.

This week, 13 Dow component stocks and 111 of the S&P 500 ae set to report earnings.  Among the quarterly reports include Apple, Microsoft, Netflix and Tesla. “The Street is expecting robust results from Apple on Wednesday after the bell with Cupertino expecting to handily beat Street estimates across the board,” wrote Dan Ives of Wedbush.  Companies have already kicked off earnings season with strong results.  Of the S&P 500 components that have already reported, 73% on both on sales and EPS (earning per share) according to data from Bank of America.