Week In Perspective: Investors buy the dip and propel market to new record highs [05-Feb-21]

The stock market rebounded swiftly from last week's decline, with the S&P 500 finishing higher in all five sessions and ending the week with a 4.7% weekly gain. The Russell 2000 gained 7.7%, the Nasdaq Composite gained 6.0%, and the Dow Jones Industrial Average gained 3.9%.

All 11 S&P 500 sectors posted weekly gains, ten of which advanced between 2.3% (utilities) and 8.3% (energy). The health care sector (+0.5%) underperformed.

Positive factors this week included shares of GameStop (GME) reverting to the mean, better-than-expected earnings reports, encouraging economic data, reports of increasing vaccination rates, and persistent expectations for additional fiscal stimulus. Alphabet (GOOG) and Amazon (AMZN) headlined this week's earnings reports.

Economic data, good or not-so-good, was construed as positive for the market because 1) if it was good, it showed the economy was improving, which would suggest greater earnings potential and 2) if it wasn't, it supported the thesis for additional fiscal stimulus. Such is life in the bull market.

The January ISM Manufacturing and Non-Manufacturing PMIs came above 50.0% (expansionary territory) for the eighth straight month. The labor market, on the other hand, remained sluggish, and the Congressional Budget Office said it doesn't expect employment to recover to pre-pandemic levels until 2024.

Nonfarm payrolls increased by 49,000 (Briefing.com consensus 50,000) following a 227,000 decline in December, while the unemployment rate improved to 6.3% (Briefing.com consensus 6.7%) from 6.7% in December.

The 10-yr yield increased eight basis points to 1.17% amid persistent selling pressure, as investors continued to bet on improved economic growth. The 2-yr yield decreased three basis points to 0.09%. The CBOE Volatility Index dropped 36.7% to 20.95, as investors dialed back hedging exposure.

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