Weekly Market Update 02/01/2021
President Joe Biden is hitting the ground running, reflecting the myriad problems he faces as his tenure begins. Such difficulties are headlined by the staggering toll from COVID-19, the need to get Americans vaccinated, efforts to put a struggling economy back on track, and attempts to get stimulus payments and pandemic relief to financially strapped individuals and families. In the meantime, the President has issued executive orders on revising immigration enforcement and environmental protections. Proposals to overhaul tax and regulatory policy likely will follow after a time.
Getting vaccines into arms will be the first priority. After a rollout beginning late last year, the vaccination program has sputtered. This is leading to Mr. Biden’s pledge to administer an upwardly revised 1.5 million doses of the vaccine a day during the first 100 days of his Administration, and thereafter to increase the government’s order for the two already-approved vaccines. Successfully handling COVID-19 will be needed before tack- ling other matters.
Picking up the economic pieces also will be high on the list of challenges. True, the business expansion, underpinned by strength in homebuilding, industrial production, and factory usage, has not been under pressure to the degree it was last spring. Still, with jobless filings stubbornly high and retail sales now faltering, it will be hard to right the ship until the coronavirus (now slightly on the decline) subsides further.
Earnings reporting season presents its own challenges. Here, though, the news is generally favor- able, with more companies than not surpassing modest revenue and profit expectations. In those cases where sales and/or earnings have missed the mark, reactions have been swift and often severe.
All the while, there’s the need to lower the temperatures in Washington and across the nation. We think that success in such endeavors will take considerable time and effort. But the attempt is needed.
Meanwhile, stocks continue to rally, with nary a letup. One reason for this persisting strength is that the Administration seems to be getting a brief honeymoon. That could change in a flash, however, if efforts to meet the challenges of COVID-19 or the flagging economy are delayed or fall flat.
Conclusion: We still see more reasons to be bullish than not, but the edge is narrowing as price- earnings ratios rise. We would be especially careful pursuing stocks solely on rumors or on the mere suggestion of a changing outlook where the risk could well outweigh ill-defined possible benefits.