Q4 earnings thus far have been highly positive not just at home but on a global basis. In the U.S alone, out of the 70% of companies that have already posted earning reports, 85% have beaten their expectations. Not only is the high percentage of companies beating estimates outstanding but companies are posting +3 earnings growth. Revenues are beating estimates by at least 75%.
As for the financial market, the major indexes keep climbing higher. With the S&P 500 (SPY) returning 18% for last year, it has certainly carried over to the first part of 2021. The Russell 2000 (IWM) is outperforming at 15% year-to-date. This market is making everyone look like a genius. Throw a dart at most market sector, industry, theme and there is a good likelihood that that stock is positive.
Big Picture
It's really no surprise the financial markets are up. With positive earnings reports and improving global economic data, the market is discounting the fact that this month has been one of the highest death toll caused by the virus since the start of the pandemic. The market is forward-looking and seeing that an opening of the economy and pent-up demand will propel the market even higher.
This week all major indexes (S&P, Nasdaq, Djia, and Russell) all posted new highs for the third trading day in a row. The daily chart below of the S&P 500 currently has the market pushing past the average resistance line (yellow dash). It is now found support right above that level.
This is all well and good but one thing to note is that in reality, the entire week's gain came in on the tail end of Friday's trading session. For the most part of the week, the market struggled to hold onto its prior gains.
Market Sentiment
"Up in smoke" is the name of the game here. Earlier this week, Reddit WallStreetBets turned their attention to the Cannabis stocks such as APHA, TLRY, CRON. Unlike GameStop, the WallStreetBets folks were quick to get in and get out.
As for the overall sentiment reading, we are now at a reading of 62.33 (Friday 2/12/21). It only took less than 5 trading days to reverse the minor pullback (profit taking) that occurred earlier in the week.
Economic Outlook
There is currently a lot of discussions that we are currently in an "everything" bubble. Recently, we have had a few financial bubbles: Junk bonds in the 1980s, tech stocks in the late 1990s, and the housing market in the mid-2000s. While those past bubbles were sector-specific, today's "bubble" is pretty much everything. Why is that?
Well, if we look at a couple of our long leading indicators, it is pretty clear what is going on. Lots of money printing by the Federal Reserve! All of this money is flowing right into the financial markets.
The housing market is on fire right now. It is interesting that the last sector bubble was in the housing market. It is rare to see an asset class make such a strong recovery in such a short time period. In the past few years, home prices have blown past the 2006 bubble highs and are still now in an upward trend.
Market Outlook
Markets were positive for the week with small-cap making the largest ground. As noted in last week's blog, the market is still in a bullish long term trend. Let's take a look at it closer starting with SPY.
SPY
During Wednesday and Thursday, there was a rather quick sell of when IWM hit highs early in the mornings. It consolidated on Thursday and saw a rally late on Friday.
IWM
Small caps had a similar chart pattern with a sell-off mid-week followed by a rally to close out Friday.
QQQ
Large caps were in a consolidation period last week and rallied late on Friday as well.
Concluding
Tell me if you have not heard this before. It seems like we have been saying this for the last year. The bulls are firmly in control right now. Technically, speaking it looks like the market is currently consolidating February's gains and are looking for another move up. Sure, markets are looking overbought in the short-term but this recent consolidation has alleviated some of that condition. However, bear in mind, this overbought condition can remain this way for some time while the markets move higher. If for the past 90+ days, you were the one saying the market is about to roll over because of the everything bubble, you would have been wrong every single day.