Overview: Global stock markets declined last week as the Covid-19 pandemic continued to dominate the headlines. Vaccine rollout concerns continue, and investors remain in limbo given potential obstacles to President Biden’s latest $1.9 trillion stimulus plan. In the U.S., the S&P 500 Index fell -3.3% for the past week, with international developed and emerging markets stocks down -3.5% and -4.4% respectively. In bonds, the U.S. 10-year Treasury finished the week at 1.09%, up in yield from 0.92% at the start of the year 2021. In economic news, the Federal Reserve held its first meeting of the year last week, reiterating their expectation to hold short-term rates close to zero through 2023. U.S. gross domestic product (GDP) was reported for the fourth quarter of 2020, decelerating to a +4.0% annualized rate. This lower-than-consensus reading reflects the ongoing impacts of the pandemic, with restrictions and lockdowns weighing on the recovery.
Earnings (commentary from JP Morgan): The fourth-quarter public company earnings season is here, with 49.9% of S&P 500 companies reporting earnings. Operating earnings per share (EPS) is tracking $37.93. This represents a 3.2% decline from a year prior, as 84% of companies have beaten earnings estimates and 70% of companies have beaten revenue estimates. Results from financial companies have been better than expected, as the sector has benefited from the release of large loan loss reserves on the back of improving credit metrics. That said, early reporting industrial names have offset these better-than-expected results, as economic lockdowns continue to weigh heavily on the airline industry. Looking at the three main drivers of earnings, margins continue to improve, with fourth-quarter 2020 trending slightly below fourth-quarter 2019 levels at 10.5%; on the other hand, revenues and share buybacks look set to weigh on EPS growth this quarter. Looking ahead, and assuming a successful deployment of vaccines, 2021 earnings will likely be driven by those factors most hindered by the pandemic such as consumer spending and travel. In such a scenario, we expect the more cyclical and value-oriented areas of the equity market (financials, industrials, energy, and materials) will outperform versus growth. Furthermore, given their more cyclical orientation, we also expect international equities to outperform the U.S., particularly those companies in emerging markets.
Weekly Returns and Data
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