Strong Earnings Drive Markets Higher

Over the past week, the market was able to find its footing and logged a solidly positive week in which all three of the major averages gained ground. Investors were able to avoid a repeat of the previous two weeks where headlines published on Sunday led to a significant decline in the index futures pointing toward a deeply red open on Monday morning, ultimately to end up gaining back nearly all of that lost ground throughout the remainder of the week. This past week, seemingly the market was able to bypass all of that as investors were able to better block out the noise and focus on the fundamentals of the market. As of the market close on Friday, a little more than three quarters of S&P 500 companies have now reported their earnings and it is clear that this reporting season is going to go down as quite strong with a healthy 76% of reporting companies beating EPS estimates. Now, the major economic reports that our team was looking out for last week mainly disappointed as both inflation reports were slightly hotter than anticipated and the retail sales report missed by quite a large margin to the downside. However, despite these sour datapoints, investors largely shrugged them off as the impressive Q4 earnings results seemingly outweighed the negatives. Now, taking stock of the current market internals. Despite the volatility experienced over the past few weeks, the VIX is only sitting a little above 14, indicating that investors have largely drained the ‘Fear Premium’ out of markets. The NYSE Advance Decline Index showed some very positive momentum in the past week as it continued to make new short term higher highs and higher lows and additionally, the index is quickly approaching a new 52-Week High. Furthermore, on the back of the bullish week in the market, the number of S&P 500 stocks trading above their 200-Day moving average rose to 59%. With this said, as we have learned in the past month the market is certainly not immune to headline risk, but investors are seemingly beginning to adjust their behavior and be more discerning with how they react to each new headline out of Washington. They have, at least for now, seemed to leave behind the ‘shoot first, ask questions later’ approach. Now that we largely have Q4 earnings season behind us and a strong majority of S&P 500 companies have posted impressive results, we feel this combined with the strong technical setup in the market and the improving market internals will be the catalysts to push the market higher over the intermediate term.

Key Events to Watch this Week

Consumer Sentiment
Remaining Q4 Earnings
New Policy Actions

In the market week ahead of us, we will only feature four trading days as markets will be closed on Monday in observance of President’s Day, so markets will not open for trading until Tuesday. After a few consecutive weeks where they were seemingly jampacked with fresh economic reports of high importance, this coming week is a bit more relaxed on this front. There are a handful of reports due but the most significant in our eyes will be the February Consumer Sentiment report which will be published on Friday. On the back of a disappointing retail sales print, investors will be eager to see if there is a marked turn developing in Consumer Sentiment which could further affect economic activity in the country or if the January retail sales report was more of a one-off report. As we have said, the lion share of Q4 earnings results are now in the rearview mirror, however, there are still a few earnings reports of consequence that are still outstanding. This upcoming shortened trading week will feature a few of them, as both Arista Networks, Inc., & Walmart Inc. are due to report their Q4 earnings results on Wednesday and Thursday respectively. There are a few other major companies due to report their Q4 numbers as well but these two are the primary reports that our team is concerned with in the coming week. As has been the case over the past few weeks, we are not overly concerned with headline risk in the market, yet as we are still in the first 100 days of a new administration that has hit the ground fast with new policy announcements, we are cognizant of that fact that at any moment fresh headlines could be printed which could affect the markets. Now again, over the past week, investors seemed to somewhat shed their fears of unknowns related to fresh policy action by the administration, yet we are aware that this could shift at any moment. With all of that in mind, we feel the market is currently in a strong position as the S&P 500 is now only 0.22% below its all-time high and has been making a series of higher lows over the past few weeks. With the current technical setup, it is our opinion that the S&P 500 is set up to break out to new all-time highs in short order.

Thank you for reading this week’s edition of the Weekly Market Periscope Newsletter, I hope you enjoyed it. Please lookout out for the next edition of the newsletter as we will give you a preview of the upcoming week’s important market events.

Thanks,