Locally based CPA firm since 1956

In January, the Dow lost 2.0%, the S&P 500 lost 1.1% while the NASDAQ managed to gain 1.4%.  The bond market continues to be a mine field; on January 4th, the real yield on the U.S. 10-year Treasury note fell to its lowest level on record, declining to -1.11%, meaning that, after accounting for expected inflation, holding a 10-year U.S. Treasury bond to maturity will mean losing more than 1% annually. This paired with a potential choppy recovery means that investors are scratching their heads and asking, “where do we look for yield?” and signaling a propensity for cash.  

It was evident that the so-called rebellious spirt among retail traders was burning strong. Considering these emotions, the volatility, and recent commentary about the market being vulnerable for a correction, there was an accompanying suspicion if the short-squeeze mania was the catalyst for a potentially extended pullback.

One of the concerns of market watchers has been the valuations of stocks. Stocks are currently trading at about 23 times 2021 earnings, above the historical range of 15 to 17 times forward earnings.   Today’s valuations may be explained by expectations of a strong economic rebound and a rise in corporate profits. So far, this earnings season appears to vindicate the optimism; With ½ of S&P 500 companies reporting, 91% of them have exceeded estimates by an average of 18.5%. Investors are expected to continue to watch company earnings in the weeks ahead to see whether these consensus-beating results continue. 

As of January 27th, the total number of Covid-19 doses administered was 24,652,629.  Johnson & Johnson said its single-dose vaccine candidate was 66% effective in protecting against COVID-19, and Novavax said its vaccine candidate produced an 89.3% efficacy rate in its Phase 3 trial in the UK.   In January despite rising coronavirus cases/deaths, the insurrection, the impeachment of President Trump, and a deterioration in the labor market, sentiment indicators remain firmly in the bullish camp.  Folks are optimistic that “normal” is just around the corner.

Happy Valentine’s day: At the end of the 5th century, Roman Pope Gelasius officially declared the date of February 14 “St. Valentine’s Day.” It was not until the Middle Ages, though, that the holiday became associated with love and romance, a tradition that first started from the common belief in France and England that birds started their mating season on February 14.

 

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Have a question? Let me know! Email me at kcompton@wcmtexas.com.