Weekly Market Update 01/25/2021
President Biden faces daunting challenges as he begins his term. First, there is the need to address the sharp divisions that weigh on our country, spotlighted by the former President’s second impeachment trial. Second, there is the fight against COVID-19. That disease has claimed more than 400,000 U.S. lives and affected the fortunes of millions of Americans. Finally, there is the importance of getting the economy going again and of securing a new stimulus package along the lines Mr. Biden envisions.
Economic woes are mounting. True, we are not reeling to the degree we were last spring when GDP cratered. Still, lock- downs have multiplied along with infections, and retail sales are off sharply, with the drop especially severe if we exclude auto sales from the mix. Also, employment is down, and weekly jobless filings are up. Clearly, it will take time to get the economy going again. For now, we expect little or no growth this quarter, with a double-dip recession not out of the question.
The expected more rapid rollout of the COVID-19 vaccines should help. Still, even with such assistance, the pain resulting from the spike in infections, hospitalizations, and deaths, as well as the growing list of cities and states suffering with lockdowns, curfews, and other restrictive measures, could make it several months before we see any significant improvement in the economy.
Amidst these challenges, fourth-quarter earnings season is up and running. To date, results generally top weak forecasts and we would expect this pattern to continue. With price-earnings ratios high, a decent showing may be needed to sustain, let alone lift, the market, from its lofty perch.
The bulls are still a force to be reckoned with. Additional records have been set on the major averages, as optimism builds that a more collegial tone will be sought in Washington. That will be difficult, of course, but such an attempt is worth making.
Conclusion: Given the extended levels of the stock market, much of the optimism being seen will need to be realized. That will be a formidable task. But with competing investment vehicles generally less attractive, holding quality companies with favorable earnings prospects is still appropriate.