A stark reality for the euphoric stock market? The coming week may be the closest to a settlement of bullish investors in 2021 so far.
This is the busiest week of the fourth quarter’s earnings season, highlighted by the highly anticipated results of heavyweight companies such as AT&T T,
Apple Inc. AAPL,
Facebook FB,
and Tesla TSLA,
A total of 118 companies will have to report quarterly results in the last trading week in January, including 13 components of the Dow Jones Industrial Average DJIA,
John Butters, senior analyst at FactSet Research, told MarketWatch.
And more than 60% of the weekly onslaught will take place between January 27 and January 28.
The insane period could be a crucial period for a market that may be looking for its next spark, as President Joe Biden’s newly formed government unfolds its policy initiatives and plans to tackle the COVID-19 pandemic.
So far, optimism among stock investors is high, with sentiment data from Ned Davis Research reading 74.4%, a level that it has achieved only 7.4% of the time since 1994.
Similarly, the spread of the bulbore is at 19.3% versus a median of 4% on December 31, according to the American Association of Individual Investors.
Source: American Association of Individual Investors, Major World Investors
Ned Davis Research says buying sentiment appears to have dampened the appetite for clumsy commitment that stock prices will get a meaningful correction in the short term. “One thing investors are doing less is short selling,” analysts Ed Clissold and Thanh Nguyen wrote in a January 19 research report.
According to NDR data, the short selling ratio, the number of shares sold short by the total traded expenses, was the lowest in November since 2011.
One does not have to search long to find evidence of the treacherous path that short sellers face these days.
For example, GameStop’s stock GME,
is on track for its best monthly rise in its history, up 245%, while small-investment fanatics used the stock and encouraged users on financially-oriented social platforms like Reddit to buy the shares around activist investor and well-known short seller Andrew Left, Citron, to strive. Research.
The actions of fanatical investor groups went beyond attempts at name-calling and burglary, and what the left described as “serious crimes such as harassment of minors, ”Wrote MarketWatch’s sister publication Barron’s.
For some, it is the main experience of the market. Hesitant short sellers and retail investors are trying to show off their newfound strength.
Is this how the precursor of a bubble feels? Are we in one? When will it appear, if so?
The Fed
These are all the questions that can be asked of the Federal Reserve when it provides the background for the other important event for next week: the latest update of monetary policy.
Fed Chairman Jerome Powell is often blamed for both helping to prevent a financial market disaster during the onset of the coronavirus pandemic in March last year, as well as for incurring too many risks.
The Federal Open Market Committee, chaired by Powell, quickly lowered interest rates to nearly 0% and pumped trillions of dollars of liquidity into the financial market raised by COVID-19.
However, some critics argue that the Fed’s policies take some risks. Bears also argues that the endless money pressure will have consequences for the US dollar, for the economy and ultimately the financial markets in the long run.
Biden proposes an additional $ 1.9 billion in federal government spending to free the U.S. economy from a recession as coronavirus cases and deaths reach a new high this month.
All of this could contribute to next week’s Fed meeting.
“Chairman Powell will look at the FOMC meeting next week. We are looking for him to strike a more optimistic, yet cautious tone, ‘write economists Lydia Boussour and Gregory Daco of Oxford Economics in a Friday research note.
In recent speeches, Powell has already indicated that the Fed is not eager to withdraw from monetary policy soon, including raising interest rates from historic lows or reducing its asset purchases, a source of support for financial markets.
The Fed meeting begins Tuesday with Powell & Company delivering its policy update Wednesday at 2 p.m. Eastern, followed by a news conference hosted by the chairman.
US economic growth?
On Thursday, a day after the Fed’s decision, market participants will wait for the official report card on the health of the US economy.
According to consensus estimates among U.S. economists surveyed by MarketWatch, the U.S. economy grew by about 4% year-on-year in the last three months of 2020, which would normally be phenomenal, but on the heels of a 33.4 percent increase. % in the third quarter.
If the GDP reading continues to show upward progress, it may emphasize that the economy is moving in the right direction, even as the coronavirus pandemic rages.
After all that has been said and done as the Dow, the S&P 500 index SPX,
and the Nasdaq Composite COMP,
still at a spitting distance of record highs, the bulls can encourage themselves even more.