This week’s Market Signals podcast discusses why positive COVID-19 news, solid small caps performance, high stock valuations, and more positive data trends are sending strong signals for 2021. Watch Market Signals: Positive Trends Send Strong Signals for 2021.
US stocks open little changed
- European markets are firmly higher after the European Central Bank stands pat on its pandemic purchase program.
- Asian markets closed lower after China’s central bank warned about asset bubbles.
Interest rate pattern holding true
Large one-year declines in the 10-year Treasury yield historically signal rising rates over the next year, and the pattern has been holding true.
- As of January 22, the 10-year Treasury yield was up 0.4% since the end of March 2020.
- It’s been advancing about 0.08% per month since the beginning of August 2020.
- We think the pace of rising rates will slow as buyers attracted by higher yields come into the market.
For more on Treasury yields after large declines, read today’s LPL Research blog.
Strong earnings season so far
Earnings growth for the fourth quarter is tracking to a 5% decline, 6 percentage points ahead of expectations (earnings data source: FactSet).
Stocks took a round trip on Monday, with the S&P 500 Index finishing up 0.4%, approximately where it opened, but also more than 1.4% off its intraday lows. Leadership leaned defensive, with utilities and consumer staples the top performing sectors. The 10-year Treasury yield broke tactical support at 1.07%, falling 5 bps (0.05%) to 1.02%. Next support for yields comes in at 0.98%.
The United States reported 133,000 new COVID-19 cases Monday, the lowest since early November, excluding Christmas Day (source: COVID Tracking Project).
- The 7-day average of new cases has now posted five straight week-over-week declines of 20% or more.
- 1 million vaccine doses have been administered worldwide as attention begins to shift on developing alternatives for virus variants.
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