This week is going to be huge for the market as corporate earnings reports start to come out. This report includes 118 S&P 500 companies and 13 Dow 30 companies. The GDP report will come out on Thursday which is expected to show a 4% growth rate. We are anxious to see what happens there and if expectations will be met. The next big thing happening this week is the Federal Reserve meeting that is scheduled for Wednesday. So, with all this coming up, it will hopefully create some momentum as we head into a historically volatile month. If you watch the video of this episode, you will see a chart that shows the history of February after a new president takes office and how, historically, it’s a volatile month due to the market attempting to analyze new policies. This last week of January, we really need to create momentum heading into the first week of February.
Strain on Transportation
Rising costs, as we discussed in our vlog last week, was and still is an important topic as we look at fundamentals and how they may impact the market going forward. We have mentioned before how the increase of buying things online is putting a strain on the transportation industry of this country. As a result, we are seeing prices rise. Last week, the main topic was the trucking industry. This week, we want to talk about the shipping industry. Most things in our country are imported which means it has been on a boat at some point. Shipping and container prices have gone up 128% this year. Since early December prices have gone up 60%. We are really starting to see a strain on the shipping industry due to increased demand for goods that need to be imported. Because of the Coronavirus, a lot of our production has slowed down and consumer spending on services has dropped. The increased consumption of shipped goods over goods bought in stores has definitely put a strain on the Transportation Index where we are seeing price moves. It’s estimated that only 5% of retail costs are attributed to shipping but if the cost of that doubles, then that could potentially have an impact on consumers and their bottom line. We’re also seeing this impact oil prices which could affect the consumer. We’re going to need to watch, as those earnings come in, if companies talk about increased costs. Does that hit their bottom line or are they passing it on to the consumer?
At the FOMC, will we see Jerome Powell talk about inflation? The Fed has said that they will not overreact to inflation in the short-term. A key phrase to watch for during this will be transitory. Is the inflation transitory? That means that the inflation is only impacting the current year or current period and not viewed as something that is permanent. For example, when they reopen the economy, if we see airline prices shoot up for tickets because there is a huge amount of demand, will that be a permanent change or just a reflection of the moment where individuals are more comfortable flying. If it is just one quarter, that is not terribly impactful in the economy. If it is a permanent increase in prices, then that is something that may hit for years to come and will be more impactful. Transitory is a term not used often but will become very important as we look at the fundamentals of the market, especially when it comes to earnings and prices rising either permanently or temporarily.
This past Friday, the S&P 500 closed at 3,841 which creates a new resistance level of 3,900 and a new support level of 3,770. With that being said, it will be important to watch these numbers in relation to consumer sentiment as inflation continues to rise. With stimulus, will consumer spending boost even though we are having inflation issues? Another thing we are looking at on the technical side of the market has to do with moving averages. The percentage of stocks trading above their 50-day moving average has been declining which is an important thing to look at because even though it is declining, we are still trading above historical highs. As we look at the future and discuss momentum from a domestic standpoint, it’s also good to keep an eye on global momentum because it is changing as well. We are specifically seeing momentum in the Hang Seng Index of the China markets. All these things will be at the top of the list when looking at the start of February 2021.
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