M2 BARRON’S February 8, 2021
hotels, and elsewhere get back to work.
“The market is projecting that we see the
economy pulling out of the worst of the pan-
demic in the second half of the year,” says
Quincy Krosby, chief market strategist at
Prudential Financial.
Is it ever. TheEnergy Select Sector
SPDRexchange-traded fund (XLE) gained
8.2% this past week as oil prices climbed
8.9% to $$56.85 a barrel, the highest since
January 2020. TheFinancial Select Sector
SPDRETF (XLF) got a boost as the 10-year
Treasury yield climbed to its highest level
since March. Both are signs of coming
growth. On the flip side,Clorox(CLX), one
of Covid’s biggest beneficiaries, tumbled 8%
despite reporting better-than-expected earn-
ings and offering above-consensus guidance.
No one, it seems, wants to own a stock so
closely connected to the lockdown narrative.
Wall Street is starting to believe in the
reopening, too. Macquarie’s trading desk
now expects the U.S. economy to grow by
7.1% in 2021, including inflation, up from
its previous 4.7% estimate. It would be the
strongest growth since 1983. Analysts, who
have been only too happy to leave forecasts
unchanged despite earnings beats, have
started to change their tune, increasing
their S&P 500 earnings estimates for 2021
by 2.6% this earnings season, according to
Barclays strategist Maneesh Deshpande.
“Analysts might be playing catch-up with
their revisions as companies update their
2021 outlooks,” he explains.
Yet investors might want to listen to the
bond market. The yield curve, as the differ-
ence between short- and long-term bonds is
known, has been steepening rapidly, rising
above one percentage point last week in the
two-year/10-year curve. In the short term,
that’s simply a reflection of stronger growth
expectations and more inflation, and some-
thing the Federal Reserve governors are
almost certainly happy to see.
But everything has its limits, and as the
spread between the two bond yields nears
1.3 percentage point, it could become a prob-
lem for the stock market, explains Sevens
Report’s Tom Essaye. “Historically, [a steep-
ening yield curve is a] good sign for both the
economy and stock markets in the coming
months and quarters,” he writes. “But it is
also an early warning sign that the clock is
ticking on how long the Fed will remain on
hold, or easy, before beginning to hike rates
and tighten financial conditions to combat
the threat of runaway inflation.”
The Fed, of course, has done its best to
convince the market that it won’t start rais-
ing interest rates until 2023, no matter what
markets do. How much more stocks can gain
could depend on whom investors believe.
Quality Control
It was a crazy time. Left-for-dead stocks
were soaring. Short sellers were taking a
beating. And everyone wondered whether
too much “liquidity” was inflating bubbles.
It was 2003.
The GameStop saga, as a market event,
appeared to come to an end this past week.
GameStop’s stock fell 80% to $63.77, and
while that was still more than three times
higher than it had been at the end of 2020,
its ability to captivate had seriously waned.
Yes, politicians are still calling for investi-
gations and planning regulations. Reddit
traders continue to rally around the belea-
guered videogame retailer. And talk of
“rigged markets” and the “democratization
of trading” and the “revolt” of the little guy
continues to ring through the electronic
halls of Wall Street and beyond. Even bear-
ish equity strategists have gotten into the
game, calling GameStop’s rip a sign of a
market bubble that will surely pop any day.
If only it didn’t sound so familiar. Here’s
how the Trader column described the situa-
tion in May 2003, when the dot-com bust
had finally come to an end: “There are
emerging hints of the kind of speculative
pique and latent selling pressure that can
undermine strong markets. Riskier sectors
Vital Signs
Friday's Week's Week's
Close Change % Chg.
DJ Industrials 31148.24 +1165.62 +3.89
DJ Transportation 12788.51 +700.52 +5.80
DJ Utilities 872.25 +19.85 +2.33
DJ 65 Stocks 10287.50 +410.49 +4.16
DJ US Market 986.12 +46.72 +4.97
NYSE Comp. 15069.60 +672.40 +4.67
NYSE Amer Comp. 2529.82 +113.67 +4.70
S&P 500 3886.83 +172.59 +4.65S&P MidCap 2476.67 +136.55 +5.84
S&P SmallCap 1252.75 +64.04 +5.39
Nasdaq 13856.30 +785.60 +6.01
Value Line (arith.) 8610.47 +495.31 +6.10
Russell 2000 2233.33 +159.69 +7.70
DJ US TSM Float 41074.00 +2017.51 +5.17Last Week Week Earlier
NYSEAdvances 2,845 738
Declines 459 2,523Unchanged 30 49
New Highs 492 493
New Lows 26 54
Av Daily Vol (mil) 5,102.4 7,269.0
Dollar(Finex spot index) 91.00 90.58
T-Bond(CBT nearby futures) 166-230 168-230
Crude Oil(NYM light sweet crude) 56.85 52.20
Inflation KR-CRB(Futures Price Index) 181.39 174.20
Gold(CMX nearby futures) 1810.90 1847.30Interactive Brokers Rated #1
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