Weekly Economic Update: A streak of optimism as fiscal stimulus boosts the markets; Yellen encourages spending

Presented by Nicholas Wealth Management

January 26, 2021


Weekly Market Update

In this week’s recap: A streak of optimism on fiscal stimulus and vaccines boosts the markets; Yellen encourages federal spending


The Week on Wall Street

Anticipation of a new fiscal stimulus and improved vaccine distribution powered stocks to fresh record highs last week with technology stocks leading the way. 

The Dow Jones Industrial Average gained 0.59%, while the Standard & Poor’s 500 picked up 1.94%. The Nasdaq Composite index led, gaining 4.19% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, rose by 1.15%.1,2,3


Stocks Scale New Heights 

In a holiday-shortened week, stocks rallied as investors welcomed testimony from incoming Treasury Secretary Janet Yellen to the Senate Finance Committee that suggested lawmakers needed to “act big” on fiscal stimulus, raising hopes for a new round of federal spending. 

An orderly presidential transition and the anticipation of a more effective vaccine distribution plan contributed to stocks touching multiple new highs last week. Investor enthusiasm was further supported by a strong start to the fourth-quarter earnings season. 

Mega-cap technology companies resumed their market leadership ahead of a full calendar of big tech earnings reports this week. Market momentum stalled a bit into the close on concerns that any stimulus spending bill might come in lower than expected.


Earnings Beating Expectations 

One of the concerns of market watchers has been the valuations of stocks. Stocks are currently trading at about 23 times 2021 earnings, above the historical range of 15 to 17 times forward earnings.4 

Today’s valuations may be explained by expectations of a strong economic rebound and a concomitant rise in corporate profits. So far, this earnings season appears to vindicate the optimism; With 41 of S&P 500 companies reporting through last Thursday, 91% of them have exceeded estimates by an average of 18.5%.5 

Investors are expected to continue to watch company earnings in the weeks ahead to see whether these consensus-beating results continue. 


Tip of the Week

If you want to improve your credit score, an inactive credit card will not help (and it may even hurt). The key factors in credit score determination are recent activity and recent payment history.


Media


David Nicholas joined Fox Business’ Charles Payne last Thursday, January 21st, to discuss the housing market.

Be sure to subscribe to our YouTube page for all of David’s media commentaries if you are unable to watch them live CLICK HERE!



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CITATIONS:

1. The Wall Street Journal, January 22, 2021 

2. The Wall Street Journal, January 22, 2021 

3. The Wall Street Journal, January 22, 2021 

4. CNBC, January 21, 2021 

5. Earnings Scout, January 21, 2021 

David Nicholas

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