Wednesday , March 3 2021

The bulls on the stock market are preparing for a big gut check like earnings, Fed and GDP



A harsh reality for a euphoric stock market? Next week could be the closest settlement for bull investors so far in 2021.

This is the busiest week of the fourth quarter earnings season, highlighted by the hotly anticipated results of heavy companies like AT&T T,
+ 0.35%,,
Apple Inc. AAPL,
+ 1.61%,,
Facebook FB,
+ 0.60%
and Tesla TSLA,
+ 0.20%.

In total, 118 companies are scheduled to report quarterly results in the last trading week in January, including 13 components of the Dow-Jones blue-chip industry average, DJIA,
-0.57%,,
John Butters, a senior analyst at FactSet research, told MarketWatch.

And over 60% of that weekly onslaught will take place between January 27th and 28th.

The frantic period could be shaped as crucial for a market that may seek its next spark as the newly formed administration of President Joe Biden’s administration develops its political initiatives and plans to fight the COVID-19 pandemic.

So far, optimism is sky-high among equity investors, with Ned Davis Research’s sentiment data showing 74.4%, a level it has only just reached 7.4% of the time since 1994.

Similarly, the spread of bear bulls is 19.3% versus a median of 4% as of Dec. 31, according to a survey by the American Association of Individual Investors.

Source: American Association of Individual Investors, Major Global Investors

Ned Davis Research says the buying mood has apparently shattered the appetite for bear bets that stock prices will face a significant short-term correction. “One thing investors have done less is short selling,” analysts Ed Clissold and Thanh Nguyen wrote in a Jan. 19 survey report.

According to the GDR, the ratio of short-term sales, the number of shares sold briefly divided by the total issues traded, reached its lowest level since 2011 in November.

It doesn’t take long to find evidence of the treacherous path by which short sellers are sold today.

Case, GameStop shares GME,
+ 51.08%
is on track for its best monthly growth in its history, an increase of 245%, while retail fanatics advertised stocks and urged users on financially oriented social platforms like Reddit to buy stocks to squeeze out activist investor and prominent Citron Andrew Left Research .

The actions of fanatical groups of investors went beyond attempts at provocation and hacking and included what Left described as “serious offenses such as harassment of minor children, ”Written by sister sister MarketWatch Barron’s.

For some, this is the pinnacle of the market. Concealed short sellers and few investors trying to show off their newfound power.

Is it a feeling of a bubble precursor? Are we in one? When will he jump out, if he wants to?

Fed

These are all questions that can be asked of the Federal Reserve when it provides a backdrop to another major event for next week: the latest monetary policy update.

Fed President Jerome Powell has often been accused of helping prevent a catastrophe in financial markets during the start of the coronavirus pandemic in March last year, as well as encouraging excessive risk-taking.

The Federal Open Market Committee, headed by Powell, quickly cut interest rates to close to 0% and pumped billions of dollars of liquidity into the financial market rocked by COVID-19.

But the Fed’s policy has boosted some of the risks, some critics say. The Bears also argue that the endless printing of money will have long-term consequences for the US dollar, the economy and ultimately the financial markets.

Biden is proposing an additional $ 1.9 trillion to set aside the federal government to help pull the U.S. economy out of recession as coronavirus cases and deaths reach a new peak this month.

All of this may give extra significance to next week’s Fed rally.

“All eyes will be on President Powell at next week’s FOMC meeting. We ask him to set a more optimistic but cautious tone, “wrote economists Lydia Boussour and Gregory Daco of Oxford Economics, in a note on the survey on Friday.

In recent speeches, Powell has already indicated that the Fed does not want to withdraw monetary policy adjustments soon, including raising interest rates from historic lows or narrowing asset purchases, a source of support for financial markets.

The Fed meeting begins on Tuesday, and Powell & Company brings its policy updates on Wednesday at 2 p.m. Eastern, followed by a press conference hosted by the president.

American economic growth?

On Thursday, the day after the Fed’s decision, market participants will await an official report on the health of the U.S. economy.

According to consensus estimates among U.S. economists surveyed by MarketWatch, the U.S. economy may have grown about 4% year-over-year in the last three months of 2020, which would generally be phenomenal, but comes due to a 33.4% increase in the third quarter.

Yet if reading GDP continues to show upward progress, it may underscore that the economy is moving in the right direction, even as the coronavirus pandemic continues to rage.

After all that has been said and done if the Dow, the S&P 500 SPX index,
-0.30%
and Nasdaq Composite COMP,
+ 0.09%
still at a saliva distance from record heights, bulls can be found even bolder.




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