Bullish momentum on stimulus hopes and positive earnings expectations continued to drive Wall Street higher with the S&P 500 and NASDAQ setting more fresh records. The NASDAQ led the way with a 0.55% rally to 13,530. The S&P 500 posted only a fractional gain on IT, consumer discretionaries, and communication services, but it was sufficient for another new high at 3858.
The Dow ended marginally lower. There are headwinds from the virus and uncertainties over the amount of stimulus that will make it through Congress, but they are being overshadowed for now. Treasuries posted small losses amid the gains in risk appetite and some worries over inflation. Longer maturities underperformed with the bond cheapening over 3 bps to 1.865%. The 10-year rose to 1.102%. The wi 2-year was little changed at 0.135%, little impacted by next week’s supply announcement.
We have been watching oil prices for two reasons. The first one is that it directly affects the prices of many energy stocks like Exxon Mobil (XOM). The second is that we see a correlation between the health of the economy as whole and oil prices. Obviously, there are many factors that affect the price when it comes to supply/demand, but it has proven to give us a great indication of the health of the economy.
Looking at the chart above, you can see that oil prices have recently been very correlated with the S&P 500. Investors should be watching for a dip in oil as an indicator of a potential slowing of the economy.
Key Market Point
- U.S. data calendar includes existing home sales, flash Markit PMIs
- Canada calendar has retail sales – expected to edge up 0.1%
- So-called British Covid variant, highly transmittable, is turning up around the world
- Euro outperforming amid sentiment shift on ECB policy stance
- Dollar bloc, the cyclical currencies down as investors turn cautious
- Core EGBs have lifted with Treasuries as risk aversion took a grip on markets
- UK prelim Jan composite PMI much worse than expected, at 40.6 from Dec’s 50.4
- Eurozone composite PMI dropped to 47.5 in January from 49.1 in Dec
The markets are likely to be in flux amid the various influencers. Data is light with December existing home sales are due, expected at a 6.720 mln pace from 6.69 mln previously. Flash Markit January manufacturing and services PMIs are on tap, along with weekly EIA oil inventory figures. Earnings include Schlumberger, Kansas City Southern, Regions Financial, and Ally Financial.