And the beat goes on still moving strong on and on
Apparently, the US economy remains in rude health after last Friday’s jobs report which reported 355,000 jobs were created in January, twice the number expected, and December’s number was revised upwards as well. Current estimates for economic growth in the US are around 4%. With around 50% of the S&P 500 reported earnings, year over year for the fourth quarter, according to FactSet, is just over 1%. Hardly stellar, but a positive for the 2nd quarter running. The US stock market finished the week on a positive note, US treasuries less so as the strong employment report reinforced why the Fed is pushing back the timings for any rate cuts. The dollar rose to an 8-week high.
After last week’s employment report, the market is now taking more heed, pushing back their timing for when they expect the first cut. The 10-year US treasury is now trading back over 4%. All of the Magnificent Seven have now reported earnings, and according to a report in Bloomberg, 45% of the gains for the S&P 500 this year have come from those seven; if you exclude Tesla, that number goes to just over 70%. The S&P 500 has now gained in 13 of the past 14 weeks, a record last set in 1986.
The bulls are out in force; sentiment indicators are sending out red flags everywhere, and the AAII retail investor sentiment survey is at a two-year high. The CNN fear and greed index, which uses a combination of risk factors, is deep into greed territory. The Vix index remains close to historic lows. Valuations look expensive, one is reminded of the adage markets can stay irrational far longer than you can stay solvent.
As the US economy continues to truck along, there has been a lot of chat in the papers about the state of the Chinese economy. This week Evergrande, the much-indebted Chinese property company, finally went bust this week. The stock market has fallen around 60%, and most traditional matrices now look cheap. The economy has struggled from COVID-19 measures, as we all know, but this much-anticipated move from an investment and export-led economy to a consumer-led one is a continued battle. A more consumer-led economy provides growth in the short term and more sustainable growth in the long term.
This week, things will be much quieter; there will continue to be a selection of household names reporting earnings. We do get the monthly Purchasing Manager surveys from around the globe, which are often seen as something of a window on future economic growth. The composite index for the UK economy is expected to tick higher again this month to 52.5, remaining above the crucial 50 level that divides expansion and contraction.
Stocks In Europe and the US look like they will open on a positive note, despite a weaker Asia.