Weekly Update

Here’s Why Stock Markets Are So Bullish These Days

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Published December11, 2020

The stock market has been roaring ahead, having posted a spectacular monthly return in November. That big monthly gain portends further strength ahead as LPL’s Ryan Detrick points out in his table entitled “What Happens After 10% Monthly Gains? Bulls Smile – Historic S&P500 Index Gains Have Led To Continued Strong Returns”.

What Happens After 10% Monthly Gains? Bulls Smile

Where does all this bullishness come from? Here is 361 Capital’s Blaine Rollins to offer his perspective:

“With seventeen days left of trading for 2020, what is the stock market trying to tell us as it registers new all-time highs? First, it is telling you that the world will be in a much better place in 9-12 months. Today’s new highs in cases, hospitalizations and fatalities will be behind us early in the first quarter. Shelter-in-place restrictions work as France has proven. The loss of this month’s holiday parties and family gatherings will turn this into a different kind of year end, but it will be worth it because you will not want to miss 2021. As the vaccination rollouts ramp through the first half of the year, you will see and feel the excitement build into the summer. This will lead to a ramp of economic activity during Q2 in anticipation of an explosion of consumer consumption and business resumption through summer and into fall. The restaurants left standing will have lengthy reservation lists, resort hotels and airplanes will fill with vacation travelers and kids will be lining up their back-to-school shopping early to get ready for September classes to resume. If the stock market had a volume dial, it would be turned up to 11 right now.

2021 will be very exciting. I can only imagine that the resumption in social activities will be similar to how people felt after World War II. Parties in the streets. Live music at every open establishment. And bartenders in action flipping bottles in the air with smiles on their faces once more. There will be shortages in 2021. Some that you can predict now, and some that you do not yet see. Jobs will return quickly. If anyone wants to work, there will be plenty to choose from. Commuters will return to their subways and trains. Drivers will return to collect Uber and Lyft fares. And business travelers might even get on planes again to go visit clients (but this will probably be slower to recover). I do think white collar workers are looking forward to returning to the office although like business travel, it won’t come back to 100% anytime soon. We have all learned that we can get a lot done remotely so a good portion of that will continue into the future. And just as everyone is done running away from the big cities, they will likely turn into an oasis for the younger generation this summer. With the families and kids now living in the suburbs or having moved to Florida, New York City will become ground zero for the biggest party of 2021.

So yeah, the year ahead will be fun. But before the year ends, we still have a few big things on the 2020 calendar to work through. This week it is nearly given that the ECB will expand its QE program in some form. So, more fuel to help Europe get to the economic orgy that will be dropping in 2021. Sometime this week or next, the FDA should approve both the Pfizer and Moderna vaccines to begin distribution in the U.S. And the stock market likes vaccine news datapoints. Next week is the last Fed meeting of the year. The Senate also adjourns on the 18th which means we will get a Congressional COVID aid package of maybe $900B before next Friday. On the 21st, Saturn and Jupiter will cross paths in the sky, while Tesla is added to the S&P 500 Index. Don’t put it past Elon to do something interesting on this day to further memorialize the event.

As for the new highs in the market, I’d continue to expect any pullbacks to be followed by more all-time new highs. So much good news and things to look forward to in 2021, combined with a healthy banking system and all-time narrow credit spreads. The central banks have our backs and it looks like Congress is going to play ball and get some more aid to those whose jobs are currently displaced. Future uncertainties and the volatility indexes are both trending lower while optimism rises. Look at small caps outperforming big caps. Energy stocks now leading the S&P 500. Copper prices and Semiconductor stocks both telling us that economic activity is strengthening. Even the Airline Index hit a post-COVID high last week. So, go ahead and enjoy this market. You deserve it.”

Economic activity in China has returned to pre-pandemic levels, setting off a new bull market in copper, according to Goldman Sachs:

Copper has entered a new bull market

Meanwhile, consumers in the U.S. have used the Covid downtime to pay down their debt, setting the stage for a potentially powerful economic blast as the opportunity to get out and spend money returns:

Consumers' Debt Service Ratio

Demographic changes offer a longer-term bullish backdrop to economic growth and stock markets as millennials reach their peak earning years:

Millennials reach their peak earning years

The above information is taken from the always excellent blog from Blaine Rollins. For more, check out Blaine’s weekly blog here: https://361capital.com/category/weekly-briefing/


Market Update

Stock investors bounced between the negative and positive this week. Increasingly tight restrictions in areas with elevated coronavirus case numbers provided the caution while the prospect of a new congressional stimulus package offered some positive. Monday delivered a small -0.2% step back in the broad market. Stocks recouped that slim dip in Tuesday’s trade as the UK began administering the coronavirus vaccine developed by Pfizer and BioNTech (which was also approved by Canada). A selloff in large tech/consumer companies dropped the Nasdaq 100 (QQQ) by -1.9% Wednesday. The sharp drop came after eleven straight positive days for the index. The broad market S&P 500 index dipped a lesser -0.8% as congressional stimulus negotiations hit a roadbump and Facebook (FB) came under renewed antitrust scrutiny. Friday brought further weakness in the Nasdaq while the broader market traded flat. Dow Industrial component Disney (DIS) zipped higher by +14% on optimistic comments about its video streaming business. The week was also defined by a couple of big IPOs. Food delivery firm DoorDash (DASH) and house rental firm Airbnb (ABNB) both almost doubled in their market debuts, a further example of the market’s substantial appetite for stocks.

Stock indexes touched record highs this week before falling back on some apparent profit-taking. The S&P 500 (SPY) slipped -0.96% while the Nasdaq 100 (QQQ) dipped -1.20%. The smallcap Russell 2000 (IWM) continued to benefit from strength in energy and financial shares, gaining for the sixth consecutive week since breaking out last month.

Warm wishes and until next week.