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Stocks down but not out as focus turns to earnings

Fawad Razaqzada Fawad Razaqzada 15/01/2021
Stocks down but not out as focus turns to earnings Stocks down but not out as focus turns to earnings
Stocks down but not out as focus turns to earnings Fawad Razaqzada
Stocks started today’s session lower with European indices down by 0.5 to 0.9 per cent and US index futures also drifted in the negative territory as President-elect Joe Biden’s $1.9 trillion pandemic relief plan failed to cheer investors. Sentiment was also partially hurt by news Pfizer was modifying its operations to provide more vaccines this year which it said will negatively impact on vaccine shipments in late January to early February. Reports that Italy was set to tighten its restrictions further also weighed on stocks, as investors were reminded that we are far from going back to normal life.

However, despite Friday’s weakness, sentiment remains overall positive towards stocks and other risk assets.  Investors are betting that with the roll out of vaccines, we are heading towards normal times eventually and are thus largely ignoring the short-term risks posed by the growing Covid cases, and virus-related deaths and lockdowns.  Investors know full well that central banks have got their backs. Jay Powell reminded investors that the Federal Reserve is not going to begin winding down its asset purchases later this year and that it is far from considering an exit from its ultra-loose monetary policies. Similar comments have also been made by a couple of other Fed officials and other global central banks heads.

So, don’t be surprised if the markets were to resume higher, especially heading into the fourth quarter reporting season. It is a promising sign that many companies in the S&P 500 have revised up their earnings guidance and sales forecasts. Analysts are expecting an average 2.3% earnings growth in Q4, which, if met, would mean a second consecutive quarter of earnings-per-share growth after a +4.1% rise in the third quarter.

While actual earnings will, of course, matter, the stock market is forward-looking. So, outlook for future earnings from company CEOs will be equally if not more important than the actual results. There is some uncertainty about a higher tax regime under Biden’s administration, while inflationary concerns are also on the rise amid all the stimulus programmes. However, it is also possible company leaders will provide optimistic forecasts due to pent up demand – especially in the service sector.

So, the upcoming earnings results and guidance could have a larger-than-usual impact on the wider markets this reporting season. Overall, I can’t help but feel companies will want to sound optimistic about the future and that’s exactly what the markets have been pricing in. Therefore, the stock market rally could continue for a while yet, before we see a meaningful correction.

Indeed, with the S&P being so close to its record high hit just last week, I can’t be too bearish from a technical perspective either – not until the index starts to break down some key support levels and these trend lines:

S&P 500Source: ThinkMarkets and TradingView.com
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Meet our contributors
Fawad Razaqzada
×
Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Kearabilwe
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Kearabilwe Nonyana
Market Analyst, South Africa

Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives. His career in the financial markets has seen him hold various positions in global investment banks and global CFD and Spread betting firms. He has deep interest in using quantitative methods to help him understand and teach the fundamental drivers of asset prices.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.
Kearabilwe
Kearabilwe Nonyana
Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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