US gross domestic product (GDP) grew 4% quarter over quarter on an annualized basis in the fourth quarter according to the Bureau of Economic Analysis, below Bloomberg consensus forecasts of 4.2%. Government and consumer spending were notable drags on growth in the fourth quarter, though the strength in the third quarter left a high-water mark for growth for many components.
US stocks open modestly higher
The S&P 500 Index suffered its worst decline since late-October 2020 on Wednesday.
- European markets are mixed in midday trading.
- Asian stocks slipped overnight on reassessment of risk appetite.
Jobless claims fall for second straight week
The United States reported 847,000 claims for unemployment insurance last week according to the US Department of Labor, below the Bloomberg consensus forecast for 875,000.
- Continuing claims for unemployment also declined, falling to 4.77 million versus Bloomberg forecasts of 5.1 million.
- While jobless claims remain elevated, it appears the labor market is beginning to work off the surge seen at the beginning of 2021.
IMF highlights strong position of US economy
The International Monetary Fund (IMF) updated its global economic growth forecasts this week.
- US growth forecast was revised up 2 percentage points to 5.1% amid additional stimulus boost and strong late-2020 momentum.
- US GDP is now expected to regain 2019 output levels by the second half of 2021.
Growth in developed non-US economies expected to continue to lag
- Japan’s GDP is expected to grow 3.1% in 2021, up 0.8% from prior forecasts, and may regain 2019 levels in the second half of 2021.
- Euro area growth forecast was revised down by 1 percent to 4.2%, potentially overly optimistic given structural challenges and COVID-19 threats.
- The growth forecast for emerging/developing economies was increased by 0.3% to 6.3% led by Asia and, in particular, China.
Fed reiterates dovish position
The Federal Reserve (Fed) squashed worries that the recent improvement in the economy and rising inflation expectations may prompt it to taper asset purchases sooner than anticipated. Fed Chair Jerome Powell took a notably dovish stance in promoting the Fed’s commitment to supporting the economy in light of any near term inflationary forces. More on monetary policy in today’s LPL Research blog.
Strong technology results help push Q4 earnings closer to flat
- With 22% of the S&P 500 having reported, earnings growth for the fourth quarter is tracking to a 3% decline, 8 percentage points ahead of expectations.
- Materials, financials, healthcare, and technology are expected to grow earnings by double digits.
- S&P 500 earnings per share (EPS) estimates for 2021 are up over $170 per share: up 1.7% since January 1, 2021, and up 2.4% since October 1, 2020.
The S&P 500 fell 2.6% to 3750 on Wednesday. Any move below support at current levels leaves 3630 as the next tactical level to watch for the index. Other key technical levels to note: Can the 10-year Treasury yield hold support at 1%, and will the US Dollar Index break above 91? Moves past either could signal more near-term equity weakness.
The United States reported 151,000 new COVID-19 cases Wednesday, the highest in five days yet still below the 7-day average (source: COVID Tracking Project).
- The holiday surge continues to subside, as the 7-day average of new cases has posted 13 straight week-over-week declines.
- Current hospitalizations also continue to decline, now down 19% since the January 6, 2021, peak.
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Positive Trends Send Strong Signals
This week’s Market Signals podcast discusses why positive COVID-19 news, solid small caps performance, high stock valuations, and more positive data trends are sending strong signals for 2021. Watch Market Signals: Positive Trends Send Strong Signals for 2021.
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