Small Caps Still Strong
Small cap stocks have outperformed large cap stocks and breadth continues to improve. Earnings are expected to surge this year. LPL Research continues to maintain a neutral small caps view—but with a positive bias.
US stocks little changed as debate over fiscal stimulus remains in focus
- European markets are firmly lower in midday trading.
- Asian equities were higher overnight with Hong Kong the standout.
Strong earnings season so far with a key week ahead
Earnings growth for the fourth quarter is tracking to a 5% decline, 6 percentage points ahead of expectations (earnings data source: FactSet).
- 86% of S&P 500 Index companies have beaten earnings estimates.
- S&P 500 earnings per share (EPS) estimates for the next 12 months have increased by 1.3% since January 1, 2021.
- Consensus S&P 500 EPS estimates for 2021 are now 2% above 2019 levels.
- 13% of S&P 500 companies have reported so far, and approximately 120 more will report this week.
Events this week
- Tuesday: Federal Housing Finance Agency (FHFA) Home Price Index (Nov.), Consumer Confidence (Jan.), and S&P/Case-Shiller composite home price index (Nov.)
- Wednesday: Federal Reserve (Fed) Federal Open Market Committee (FOMC) meeting and durable orders (Dec.)
- Thursday: Weekly jobless claims, gross domestic product (Q4 2020), building permits (Dec.), new home sales (Dec.), and the leading economic index (Dec.)
- Friday: Personal consumption expenditures and personal income (Dec.), pending home sales (Dec.), and Michigan Sentiment (Jan.)
The Nasdaq is poised to continue its leadership from last week, with the index broadly higher despite a flat S&P 500 and a pullback in small cap stocks.
- Small caps and cyclical value sectors such as financials and energy led strongly in Q4 2020, but longer-term technology trends remain strong.
- The Nasdaq closed at record absolute highs and relative highs versus the Russell 3000 Index on Friday.
The United States reported 130,000 new COVID-19 cases Sunday, a 27% week-over-week decline (source: Johns Hopkins).
- The 7-day average of new cases has fallen 32% from its peak on January 8, 2021, and is now below its pre-Thanksgiving level.
- Daily vaccinations in the United States have reached 1 million per day on a 7-day average basis (source: COVID Tracking Project).
Market Signals Covers It All
This week’s Market Signals podcast covers all the latest events impacting markets and the economy: Q4 earnings, a new stimulus proposal, the Democratic blue wave, and President-elect Joe Biden’s new economic policy plan. Watch Market Signals: More Stimulus, New Policies, and Stellar Earnings Season.
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