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Week Ahead: Stock Rally To Continue On Earnings, Vaccine Roll-Outs; BTC To $50K

By Investing.com (Pinchas Cohen/Investing.com)Market OverviewFeb 14, 2021 08:14AM ET
www.investing.com/analysis/week-ahead-stock-rally-to-continue-on-earnings-vaccine-rollouts-btc-to-50k-200560651
Week Ahead: Stock Rally To Continue On Earnings, Vaccine Roll-Outs; BTC To $50K
By Investing.com (Pinchas Cohen/Investing.com)   |  Feb 14, 2021 08:14AM ET
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  • MSCI World Index, S&P 500 registered records on Friday
  • 30-year yield reaches 2%, forecasting rising inflation
  • Oil just shy of $60 level

Stocks extended the late-week rebound to hit a fresh record on Friday, boosted by strong earnings growth. All four major US indices—the Dow Jones, S&P 500, NASDAQ and Russell 2000—finished higher ahead of the weekend. Helping buoy investor optimism: the logistics for vaccine distribution in the US improved, after President Joseph Biden announced his administration had purchased an additional 200 million COVID-19 inoculations.

The MSCI World Equity Index climbed 0.4% on Friday, to a record for the global equity index, advancing for the tenth straight day in a row, gaining 5.9%, in its longest winning streak in years. Risk-on sentiment will likely continue lifting markets into the coming week, even as US inflation and jobs data showed growth had stalled.

Ongoing jobless claims continue to remain substantially higher than pre-pandemic levels which only served to reinforce the case and increase bets for additional stimulus along with the possibility of rising inflation. With no new obstacles in the week ahead on the economic calendar, stock bulls should find little resistance to their slow but dogged charge upward to new ground.

US Equities Score New Records; Inflation Signals Escalate

The S&P 500 scored yet another all-time high on Friday, this time with attitude, ahead of the three-day Presidents' Day holiday weekend, with a solid candle no less, demonstrating trader confidence at being locked into the most expensive equities in history. The SPX gained 1.2% for the week while the Dow rose 1% and the tech-heavy NASDAQ added 1.7% over the same period.

Energy significantly outperformed, (+1.5%), reflecting the rally in oil.

However, not every stock was a winning bet. Online travel company Expedia (NASDAQ:EXPE) released results that showed it had another disappointing quarter. Revenue plummeted 67%, slipping below the psychological billion-dollar level to just $920M—its fourth year-over-year drop in a row.

EXPE Weekly
EXPE Weekly

The stock registered a weekly shooting star, after crossing the downtrend line since the 2017 high, including repeated support at the 200 DMA. The bearish candle developed after nearing the year’s highs.

Along with stocks, Treasury yields, including for the 10-year benchmark note, rose above 1.2% for the first time since March.

UST 10Y Daily
UST 10Y Daily

The rate provided an upside breakout to a falling flag, bullish after the 20 basis-point surge within 10 days. The flag was the device which enabled rates to slingshot through the Jan. 12 resistance enforced by the shooting star.

Note the upward shift in the rising channel, from the August low, which then accelerates more quickly in November. The 100 DMA traces the original channel, and the 50 DMA (green, so camouflaged) aligned with the bottom of the steeper channel.

But the real bond story was that the 30-year yield reached and closed above 2%, for the first time in a year, setting up the market expectation of a gain for the long bond to its highest level since 2014 when it averaged 3.34% and hit a high of 3.93% during the course of the year.

Is the expectation of rising inflation that's currently part of the market narrative correct? We think so. In our view there are five reasons why:

  1. After prices collapsed in the spring and early summer during the worst of the lockdowns—gasoline prices plunged 34% and airfare fell 28% in May— any signs of recovery make it easy for prices to rise.
  2. Currently, the personal savings rate in the US is high. If restrictions were to ease with the broader vaccine rollout, it’s reasonable to expect relief-spending will ramp up.
  3. Government spending will likely accelerate as well, even as the Fed keeps the economy lubricated with near-zero rates and a continued supply of QE.
  4. The sudden shift in demand paradigms, amid lockdowns that necessitated work- and school-from-home, disrupted global distribution supply chains, creating bottlenecks which could limit inventories, increasing prices on suddenly scarce items.
  5. The Fed’s recent shift from Ben Bernanke’s 2% inflation target in 2012 to a new metric in which average inflation is targeted, allows inflation to run “moderately” above its 2% goal for some time. Since rates have been so low, it would now need to run above 2%, probably around 2.3% over the next three years to compensate for missing the target in the prior three years.

The dollar rose on Friday after five days of losses.

Dollar Daily
Dollar Daily

However, the greenback slipped ahead of the close, giving up almost all of its gains for the day. After the USD found support by an interpretation of one trend line (dotted line), it found resistance by another interpretation of a trend line (red). The dollar closed right on the top of a falling wedge since the March top.

Gold fell for a second day, after the price of the precious metal found resistance by the bottom of a rising flag, for the second day in a row.

Gold Daily
Gold Daily

The 50 DMA crossed below the 200 DMA, triggering a death cross, amid the flag, bearish after the 7.4% decline in just four sessions and within a falling channel.

Bitcoin fell Saturday for the second day, after hitting a new all-time high above $49K. The most valued cryptocurrency by market cap is now up about 70% for the year. However, at time of writing, it continues to hover below the $50,000 threshold.

A unit of Morgan Stanley Investment Management is the latest mainstream financial firm that has said it's considering adding Bitcoin to its $150 billion growth fund. Still, proceeding with this investment would require approvals from both the investment bank's management and government financial regulators.

Oil surged on Friday, to its highest point since Jan. 7. The price rose to 12 cents below the $60 mark, as predicted by the trading pattern we highlighted at the beginning of February.

The Week Ahead

All times listed are EST

Sunday

18:50: Japan – GDP: expected to drop by more than half QoQ to 2.3% from 5.3% and YoY to 9.5% from 22.9%.

Monday

  • Markets Closed for Presidents' Day Holiday in the US
  • Holidays in Canada, Brazil and Hong Kong as well.
  • China's markets closed through Wednesday for the Spring Festival holiday

19:30: Australia – RBA Meeting Minutes

Tuesday

5:00: Germany – ZEW Economic Sentiment: anticipated to slip to 59.5 from 61.8.

8:30: US – Empire State Manufacturing Index: predicted to jump to 6.15 from 3.50.

Wednesday

2:00: UK – CPI: seen to edge down to 0.5% from 0.6% YoY.

3:00: Eurozone – ECB Monetary Policy Statement

8:30: US – Core Retail Sales: to rise to 1.0% rom -1.4% MoM.

8:30: US – PPI: expected to edge higher to 0.4% from 0.3%.

8:30: US – Retail Sales: likely jumped to 1.0% from -0.7%.

8:30: Canada – Core CPI: expected to rise to 0.0% from -0.4%.

14:00; US – FOMC Meeting Minutes

19:30: Australia – Employment Change: predicted to have plunged to 40.0K in January, from 50.0K.

Thursday

7:30: Eurozone – ECB Publishes Account of Monetary Policy Meeting

8:30: US – Building Permits: seen to decline to 1.680M from 1.704M.

8:30: US – Initial Jobless Claims: likely to have slid to 775K from 793K.

8:30: US – Philadelphia Fed Manufacturing Index: to drop to 20.0 from 26.5.

11:00: US – Crude Oil Inventories: previous read was 6.65M bbl.

19:30: Australia – Retail Sales: expected to remain flat at -4.2%.

Friday

2:00: UK – Retail Sales: predicted to drop to -1.6% from 0.3%.

3:30: Germany – Manufacturing PMI: seen to have slipped to 56.5 from 57.1.

4:30: UK – Services PMI: likely to rise to 46.0 from 45.4.

8:30: Canada – Core Retail Sales: to drop to 0.3% from 2.1%.

10:00: US – Existing Home Sales: seen to recede to 6.60M from 6.76M.

Week Ahead: Stock Rally To Continue On Earnings, Vaccine Roll-Outs; BTC To $50K
 

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Week Ahead: Stock Rally To Continue On Earnings, Vaccine Roll-Outs; BTC To $50K

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Comments (9)
Logical Choice
Logical_Choice Feb 14, 2021 7:37PM ET
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Pinchas are you long or short?
Pwr Strk
Pwr Strk Feb 14, 2021 7:37PM ET
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he's both and neither
Mehdi Captain Music
Mehdi Captain Music Feb 14, 2021 5:16PM ET
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When kings are sleeping, the farmers are celebrating. Smart mindsets know how to trade on this happy Monday🎉
Jim Herndon
Jim Herndon Feb 14, 2021 12:52PM ET
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Boys, “it’s time to go to cash and wait !”
john ryan
john ryan Feb 14, 2021 12:52PM ET
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I agree.
Salim Hamdulay
Salim Hamdulay Feb 14, 2021 12:24PM ET
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sure and near to burst
Max German
7Max7 Feb 14, 2021 11:54AM ET
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it will crash very soon
Edward Chong
Edward Chong Feb 14, 2021 11:54AM ET
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haha i have been hearing this for years. instead every quarter a new high !
Jim Herndon
Jim Herndon Feb 14, 2021 11:54AM ET
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You are so right, but soon the mindless pursuit of beta without regard of fundamentals will end . Might not Be tomorrow but its coming. Consider government debt and money printing to pay for the socialist government pursuits of Washington. The impending need for much higher taxes .Margin debt off the charts. Equity prices at all time records highs. This is a big game of Hot Potato. Whatever the catalyst and maybe without one , when it turns , it will result in a very sizable correction. Very few of the talking heads want to admit this is coming. Be Careful ! I guarantee the big boys are ready.
Francesco Lucchesi
Francesco Lucchesi Feb 14, 2021 11:54AM ET
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Edward Chong it's true but if it drops 50% and it doesn't recover for 25 years you are left holding the bag.
MAP SR
MAP SR Feb 14, 2021 11:49AM ET
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Hey, Cohen! Talk a little about how the Fed is manipulating everything in sight. Include real estate prices, inflation and the real unemployment rate.
Jim Herndon
Jim Herndon Feb 14, 2021 10:41AM ET
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The Big Bubble will burst
Nick Ugarte
Nick Ugarte Feb 14, 2021 10:41AM ET
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our country has a valuation of 4 qaudrillion...cryptos are the new currency...you had better start reading more....this is a new wave economy...all countrys will be valued like stocks...our debt looks like child's play at 30 Trillion.
Rodion Mark
RM2184 Feb 14, 2021 10:34AM ET
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Sounds like a good week.
Junu Limbu
Junu Limbu Feb 14, 2021 10:02AM ET
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yes
Sohit Shrestha
Sohit Shrestha Feb 14, 2021 10:02AM ET
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Hey dude where are you from... Sounds like Nepal?
 
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