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Sightline Weekly Market Update: The Factors Weighing on Investor Sentiment

Most equity indices declined modestly for the week ending on January 15, with the exception being the mid-cap S&P 400 and small-cap Russell 2000. Both the S&P 400 and the Russell 2000 gained .46% and 1.47% for the week, bringing year-to-date returns to 5.10% and 7.33% respectively. The major indices have fallen behind, generating less than 1% year-to-date. In addition to small-caps outperforming large-caps, value stocks outpaced growth stocks, tech stocks were weak and communications services struggled after announcing bans on US President Donald Trump for concerns over inciting violence during the march on Congress. In Europe, the major indices also fell during the week, driven in part by weak economic data and concerns over the resurgence of coronavirus and lockdowns.

Weighing on market sentiment last week was the start of the earnings season, the new US stimulus plan, disappointing economic data, and the second impeachment of President Trump. Thankfully, after January 20, Trump will no longer be in office and leadership will be able to focus on rebuilding the economy.

The Q4 earnings season kicked-off with JP Morgan Chase, Wells Fargo and Citigroup reporting fourth quarter results beating estimated earnings. However, revenues fell short of estimates for Citigroup and Wells Fargo. According to FactSet, as of Friday, “the S&P is expected to report a decline in earnings of -6.8% for the fourth quarter.”[i] The question remains whether there will be more earnings surprises on the upside and whether revenues will beat expectations.

A new $1.9 trillion stimulus plan was revealed but uncertainty remains as to the speed of the rollout. Republican opposition could slow or diminish the package. Conversely, Republican opposition may become a moot point as Speaker of the US House of Representatives Nancy Pelosi has threatened prosecution and removal from office of those Republicans who assisted in the Capital Hill intrusion earlier in the month.[ii] The market decline on Friday was attributed to the Commerce Department when they announced a drop in retail sales for December of .7%, the third monthly decline in a row. Further, the decline in November was revised downward to 1.4% from the earlier reported 1.1%. Excluding automobiles, gasoline, building materials and food services, retail sales fell 1.9% in December. The Labor Department revealed first-time unemployment claims rose to 965,000 confirming signs of a slowdown in hiring to due pandemic restrictions. Industrial production rose 1.6% in December after rising .5% increase in November and 1% increase in October.[iii]

 

Over the last several weeks, Treasury yields have risen over concerns of inflation. Friday’s retail data provided a pause in the modest trend of moving higher while Treasury bonds moved lower. For the week, longer-dated yields rose slightly over concerns that later in the year the Federal Reserve may have to reassess their low interest rate policy and increase rates sooner than we currently thought. The Fed Chairman continues to reaffirm that the central bank has no plans to raise rates anytime soon, specifically until inflation is running at over 2% for some time.

To date, due to limited supplies and possibly new vaccine resistant strains, the efficacy of the vaccine rollout is impacting investor sentiment and government response. Further restrictive lockdowns will slow the speed of recovery. The hypocrisy of Washington is alienating a vast number of citizens while at the same time eroding small business confidence in a period when small businesses are needed to rebuild the economy. While our leadership talks about inclusion, their response to the coronavirus and other social and economic issues is creating a bifurcated society, which leads to more uncertainty. This uncertainty can only lead to market volatility as the noise of Washington continues to plague investor sentiment.

 

Sources:

[i] https://insight.factset.com/will-the-sp-500-report-year-over-year-earnings-growth-in-q4

[ii] https://www.dailymail.co.uk/news/article-9152291/Nancy-Pelosi-threatens-prosecutions-Republicans-aided-abetted-MAGA-riot.html

[iii] https://abcnews.go.com/US/wireStory/us-industrial-production-jumps-16-december-75275546

 

 

Important Information:

Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management. 

Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors primarily through fee-based accounts.

Sightline Wealth Management LP is a wholly owned subsidiary of Ninepoint Financial Group Inc. (“NFG Inc.”). NFG Inc. is also the parent company of Ninepoint Partners LP, it is an investment fund manager and advisor and exempt market dealer. By virtue of the same parent company, Sightline is affiliated with Ninepoint Partners LP. Information and/or materials contained herein is for information purposes only and does not constitute an offer to sell or solicitation to purchase securities of any issuer or any portfolio managed by Sightline Wealth Management or Ninepoint Partners, including Ninepoint managed funds. 

The opinions and information contained in this article are those of Sightline Wealth Management (“Sightline”) as of the date of this article and are subject to change without notice. Sightline endeavors to ensure that the content has been compiled from sources that we believe to be reliable. The information is not meant to be used as the primary basis of investment decisions and should not be constructed as advice. Each investor should obtain independent advice before making any investment decisions.

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