The 1% Move Report

Timely commentary on market performance whenever the S&P 500 changes more than 1% in a day.






Wealth Management — February 4, 2021

What Happened in the Markets?

  • US stocks traded higher on Thursday as the S&P 500 rose 1.1% to close at 3,872. With the rally, the index is now up 3.1% year to date.   
  • US equities rose for the fourth straight session as the S&P 500 has now recouped all of last week's losses with the index closing at a new all-time high. Markets may have gotten a lift from strong data on Thursday, with weekly jobless claims coming in better than expected and a number of strong corporate earnings reports overnight. Jobs data will remain in focus with the release of the January non-farm payrolls report Friday morning. 
  • Ten of the 11 S&P 500 sectors finished the session higher, with Financials (+2.3%) and Information Technology (+1.6%) outperforming the broader market, while Health Care (+0.4%) and Materials (-0.5%) lagged the broader market. 
  • Rates were mixed across the curve, with the 10-year Treasury flat on the day, closing at 1.14% as of the 4 p.m. equity market close. Gold fell 2.2%, while WTI oil was higher, at over $56 per barrel. The US dollar rose modestly in the trading session, as measured by the US Dollar Index.

Catalysts for Market Move

US stocks rose on Thursday as the S&P 500 gained 1.1%. After the index recorded its worst week in three months last week, markets have snapped back this week, and the now four-day rally has seen the S&P 500 claw back last week's losses to close at a new all-time high. This week's rally comes as volatility has normalized following a spike in volatility last week as a surge in highly shorted stocks appeared to put pressure on markets more broadly. Strong economic data this week, as well as a string of earnings beats from several large-cap companies through Q4 earnings season, appears to be buoying sentiment. Additionally, optimism surrounding a potential fiscal package in Washington has also been growing, and has likely contributed to this week's rally. Outside of the equity market, cross-asset action also reflects this optimism, with long-end Treasury yields moving higher this week and commodities rallying. Crude oil has been notably strong, with the WTI crude oil contract trading above $56 per barrel today for the first time in more than a year. Looking ahead, focus will be on Friday morning's January non-farm payrolls release, with consensus expectations calling for the US labor market to have added 100,000 jobs last month.

The Global Investment Committee’s Outlook

Record and unprecedented stimulus from both the Fed and Congress has unleashed a V-shaped recovery in global trade, manufacturing, goods retailing, and housing. That momentum, coupled with the resolution of the US Presidential election and much better-than-expected initial trial outcomes for COVID-19 vaccines, has lifted equity markets to new all-time highs. Although investors are correct to be concerned about index level valuations, which have reached multi-decade extremes at more than 22x forward earnings, the economic and profit dynamics in 2021 could support another 5%-10% gain to 3,900 for the S&P 500. Another round of fiscal stimulus, continuing Fed accommodation, and swelling pent-up demand for consumer services, may also support economic growth acceleration to 5%-6% real GDP, with inflation rebounding to more than 2%, a scenario that should support 27% year-over-year profit gains. However, optimal navigation of this burgeoning new business cycle will require care as Treasury rates are likely to move higher, creating a headwind for long-duration assets. In stocks, our preferences remain focused on quality and valuation support, attributes that remain in small caps, international stocks and cyclicals, including financials, which should benefit from the steeper yield curve. Dollar weakness is likely to continue as policy choices are debasing and relative growth outside the US becomes more compelling, supporting the case for emerging markets and commodities. In fixed income, the challenge is two-fold: Generating sufficient income, while also preserving capital, requires a diversified and active exposure, with our preference toward a mix of corporate credit (IG and HY), preferreds, leveraged loans, asset-backed securities, including select mortgage-backed, and dividend-paying stocks. Capital preservation and portfolio hedging from equity volatility may be achieved with a combination of cash and ultra-short duration instruments, and absolute return hedge funds. Real assets like gold, infrastructure and real estate for inflation support should be bought opportunistically.

Market data provided by Bloomberg.

Dow Jones Industrial Average (DJIA): A price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry.

NASDAQ Composite Index: A broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market.

S&P 500 Index: The Standard & Poor's (S&P) 500 Index tracks the performance of 500 widely held, large-capitalization US stocks.

US Trade-Weighted Dollar Index: A weighted average of the foreign exchange value of the US dollar against a subset of the broad index currencies that circulate widely outside the US.

VIX: This is a trademarked ticker symbol for the Chicago Board Options Exchange Market Volatility Index, a popular measure of the implied volatility of S&P 500 Index options. Often referred to as the fear index or the fear gauge, it represents one measure of the market’s expectation of stock market volatility over the next 30-day period.

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