Overview: Stocks were mixed across the globe, finishing the week close to even, as investors weigh inflation concerns that have begun to creep into the markets. In the U.S., the S&P 500 Index was down -0.7% for the week. The 10-year Treasury finished at a yield of 1.35%, which is about 25 basis points (0.25%) higher from the beginning of February. International stocks were up marginally in return for the week. Markets now look for signs of progress with vaccinations and improving Covid-19 cases, while keeping an eye on progress in finalizing another fiscal stimulus bill. Treasury Secretary Janet Yellen emphasized the need for a sizable fiscal stimulus for economic recovery, supporting the sizable $1.9 trillion bill put forth by the Biden administration.
Oil prices are in the news as Texas shale supplies were hit hard by the winter storm. The benchmark WTI crude price jumped to about $60 per barrel, up from $48.50 at the start of 2021. Frigid weather in the U.S. has boosted fuel demand while daily oil production has slumped by 40%.
A note on earnings (from JP Morgan): As public companies fourth-quarter earnings season comes to an end, we are projecting operating earnings per share (EPS) of $35.15, down 10.3% from a year ago. In all, 81% of companies have beaten earnings estimates, and 68% of companies have beaten revenue estimates. Technology and health care companies continue to see profits rise, with year-over-year EPS growth of 27.2% and 8.8%, respectively. At the other end of the spectrum, energy and industrials are projected to end the quarter with significant EPS contractions, which come as no surprise given the drop in oil prices and pullback in air travel and transportation. However, this story is evolving. Financials, which came under severe pressure in 2020, have showed signs of recovery as declining NIMs level out and credit metrics improve. Likewise, consumer discretionary is set to end 2020 on a positive note, with the sector’s EPS currently projected to grow 3.0% year over year. Looking ahead, we expect both sectors, as well as the cyclical parts of the market more broadly, to see earnings growth outpace their growth counterparts in 2021. That said, while an economic recovery will boost earnings in 2021, investors should recognize that an overly rapid recovery could very well lead to strong wage growth, thereby weighing on margins and profits in 2022.
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