Finally, talk data to me
Finally, talk data to me
What you need to know in 5 minutes - Feb 08, 2021
Announcements:
We’re one month into 2021, and what a packed month it’s been! As usual, we’ll be diving into this week’s activity, for a recap of the major developments and drivers so far, check out MarketMaker’s January report.
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What the Market?
Mr. Market seems to be back on track after the “epic retail investor revolution” of last week. After sitting down to catch-up on the latest earnings, economic data, and stimulus updates, Mr. Market was finally feeling like things made sense, and he celebrated a bit by hitting all-time highs… guess that’s what data can do for ya?
How come?
A disappointing jobs report revealed the unemployment rate dropped to 6.3% while only adding 49K jobs in January, signaling that people have stopped looking for work. Furthermore, the long-term unemployed population has doubled since January 2020. A stimulus is clearly needed, but experts are skeptical whether it is properly structured to tackle key issues. Meanwhile, the 10Y treasury note continues to climb higher and the US dollar slipped, foreshadowing the potential adverse long-term effects of a large stimulus.
Speaking of Stimulus... Democrats have introduced a budget resolution that would pave the way to pass a relief bill without Republican support. Although a bipartisan deal would be great for Biden, the Administration’s priority is speed. Mr. Market seems to have interpreted this as progress regardless of how Congress gets there.
Kick-Ass Earnings Season: As of Friday, 59% of S&P 500 companies had reported earnings, with 81% of those beating analysts’ expectations. The earnings performance marks the second-highest beat since 2008 and would mark the first quarter that S&P companies report aggregate earnings growth since Q4 2019! The worst may be behind us, and economic data should follow suit pending vaccine deployment and COVID containment.
What’s an investor to do?
Investor mindset:
The current market rally looks healthy backed by strong earnings and an administration looking to pass a new stimulus bill ASAP. No need to be defensive quite yet, but be cautious about new positions – particularly in sectors that have rallied aggressively in the last few months.
Portfolio management:
Review and make plans. The current conditions provide a great opportunity to review holdings and investment strategies for the coming quarters (and longer!). It may be a good time to take some profits on tech and growth stocks that led the markets last year. In making plans, focus on sectors that may rally under the Biden Administration such as green tech and cannabis, as well as industries that will benefit from the coming stimulus package and COVID vaccine deployment (e.g., consumer cyclicals).
Keep an eye on the economy
On Wednesday, the Bureau of Labor Statistics will provide insight into the increasingly relevant CPI data (a.k.a inflation, which analysts expect to pick up in the coming years). Expect more commentary from the Fed about inflation in the coming months.
Friday, the University of Michigan will release its Consumer Sentiment Index, the first during the Biden Administration.
For the Curious Investor:
I don’t always agree with the Chinese Government, but when I do, it’s about big tech monopoly regulation... In the U.S., Senator Klobuchar proposed reforms to change merger laws and target monopolistic behavior from large incumbents while China issued anti-monopoly guidelines for the platform economy (Looking at you AliBaba, Amazon, Facebook, Google, etc…). Expect antitrust legislation to gain speed globally and volatility to impact big tech stocks as a result.
A plus-sized mouse is capturing all the dollars, we’re talking about Disney+, of course: Disney has often relied on live entertainment operations (e.g., parks, cruises) to drive revenues. Unsurprisingly, those income streams have struggled. Meanwhile Disney+ has blown past their 5 year growth target in about a year and provided Disney with an alternate opportunity to grow. Keep an eye on Disney+’s performance and guidance on continued reopening of live entertainment operations.
Get in loser, we’re going shopping: Last week Uber acquired alcohol delivery company Drizly. With Uber Eats surpassing standard ride-hailing Uber rides in 2020, the acquisition appears to be directed at further expanding the company’s logistical services, which currently include grocery, package, and prescription delivery. As Uber reports earnings this week, focus on guidance regarding their strategy and focal points for 2021, as well as the company’s continued inorganic growth driven by acquisitions.
Emerging Markets update: After Biden’s victory, investors moved their money abroad to find themselves somewhere in SE Asia #LiveLoveLaugh, or most likely, to protect against a potentially weakening dollar. With so much capital flowing towards Emerging Markets (EM), Morgan Stanley thinks the opportunity may have already peaked, having topped its year end target. With the dollar remaining stabler than expected, consider exposure into ETFs focused on specific sectors or geographic regions as opposed to broader EM ETFs.
Sector focus:
Geographic focus: India may still have room to grow. The recent “pandemic” budget focused on healthcare and infrastructure spending, in addition to an unprecedented reduction of the public sector through privatizations aims to further boost the economy which is already expected to grow 11% next year.
Earnings Season: With limited economic data being released this week, investors will focus on earnings to gain insight into the state of the economy. Look out for consumer defensives, consumer cyclicals, and reopening stocks to provide color on the 2021 recovery.
Consumer Cyclicals: Hasbro, Under Armour, Molson Coors, iRobot, Mattel, Callaway Golf
“Reopening”: MGM Resorts, Spirit Airlines, COPA Airlines, Wyndham Hotels & Resorts, Royal Caribbean Cruises
Consumer Defensive: Coca-Cola, PepsiCo, Kellogg, Tyson Foods, Kraft Heinz
Technology / eCommerce: MercadoLibre, Lyft, Uber, Expedia, Affirm, Yelp, Zillow
Economic Calendar:
Monday: Eurozone Investor Confidence Index
Tuesday: UK Retail Sales, Chinese Trade Balance, US JOLTS Job openings, and Redbook Index
Wednesday: Chinese CPI and PPI, US CPI, Bank of England Governor Speech
Thursday: Chinese FDI, US Jobless Claims
Friday: UK GDP, Industrial Production and Trade Balance, Eurozone Industrial Production, US Consumer Sentiment Index
If you didn’t know, now you know
On February 1st, Myanmar's military took over the country, effectively ending the nation’s 10 year experiment with democracy. The military has detained democratic leaders including the president, her cabinet, 400+ members of parliament, and 100+ activists and critics of the military who partook in protests more than a decade ago. The military carried out the coup on grounds of fraud in the November 8th election, which the electoral commission dismissed. Tens of thousands of protestors took to the streets leading to the military temporarily shutting down the internet before returning it and censoring access to social media.
This summary only covers the surface of the conflict. To read more, click here.
What we’re vibing:
Influence: The Psychology of Persuasion by Robert Cialdini. A deep dive into six universal principles that guide human behavior and get us to say yes or no to requests. Whether your job requires influence or you’ve ever bought something you had no intention of buying, Influence contains fascinating insight into the forces that persuade us.
Lupin - a new Netflix mystery thriller about the James Bond of thieves who’s out to clear his father’s name. Warning, once you start, you’ll binge all 5 episodes in a day.
Good News Everybody!
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Disclaimer
This writing is for informational purposes only and the author/s undertake/s no obligation to update this article even if the opinions expressed change. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services in any jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. The author/s expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.