Share Prices & Company Research


25 January 2021

US on an All-Time High

After US markets closed for Martin Luther King Jr. day last Monday, and uncertainty lingered in anticipation of Joe Biden’s inauguration, the US market has since shaken off worries around his smooth transition into office. The Democrat’s focus on increased infrastructure spending and an expected US$1.9tn stimulus package has instilled positivity in investors. Joe Biden’s first moves as President included a return to the Paris Climate agreement and a pledge to spend his first 100 days accelerating his energy and climate agenda.

Along with a new President with new priorities came all-time highs for US markets on Wednesday. Communication services and tech companies were leading the day, helping push the US S&P 500 up 1.9%, the Dow Jones up 0.95% and Nasdaq up 3.76%. Netflix was the best performer of the week, up 17% since reporting strong Q4 earnings and surpassing 200 million total subscribers. Alibaba was also up 5% as CEO Jack Ma made his first appearance in public since October. Despite an investigation into monopolistic strategies at Alibaba from Chinese State Regulators, which raised questions of his business and whereabouts, shareholders were clearly pleased to see his face again.

Investment bank Morgan Stanley joined competitors JP Morgan and Goldman Sachs in the growing list of companies reporting healthy earnings in the past few weeks, recording a 51% increase in earnings year-on-year in Q4 2020. According to FactSet, nearly 91% of US S&P companies that have reported, beat consensus earnings expectations. In addition, companies are reporting earnings 21.5% above expectations, almost double the 11.5% average positive rate over the last four quarters. The fear that revenue and profits would take a hit from continued lockdowns was clearly well integrated within analysts’ predictions, explaining why such a large proportion of companies are posting earnings significantly ahead of estimates.

UK markets moved quietly last week in reaction to economic data releases, as the US took centre stage. At the time of writing, the FTSE 100 is down around 1.9% after the short sell off continued from last week.

The rate of increase of the price of goods and services in the UK rose to 0.6%, up 0.3% from November and just above forecasts of 0.5%. One of the largest contributors to the rise in prices came from transport costs such as air fares, as well as clothing prices declining less than expected. According to analysts, a rise in transport costs was expected as they follow their normal pattern for this time of year, however, clothing prices experienced a slight increase in a period in which they tend to fall due to Christmas sales. Nonetheless, the rate of inflation was nothing out of the ordinary when weighed against the abnormal spending habits that come with continued national lockdowns.

The increases in inflation are not expected to impact the Bank of England’s decision to keep interest rates low, with sustained economic pressure from the pandemic. The UK economy shrank 2.6% in November, and with further restrictions in place for the whole of December, it is possible that the UK will return to recession. It was believed that many UK businesses were better prepared for the second lockdown, but business recovery firm Begbies Traynor said its latest Red Flag Alert showed 630,000 UK businesses in significant distress in the fourth quarter of 2020, up 13% from the third quarter. The figures raise questions to Rishi Sunak as to whether businesses need additional support before the March budget as thousands face job losses and cash flow problems.

Turning towards Europe, Dutch semi-conductor chip maker ASML rose 3% on the back of better than expected earnings and a strong order book for 2021. Swiss luxury goods manufacturer Richemont posted upbeat earnings as well, rising 2.8% after reporting a 5% increase in quarterly sales. The euroStoxx is slightly up +1.22% over the week but remains overshadowed by events in the US.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
US on an All-Time High
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