Is the Battle Between Greed and Gravity Starting to Heat Up?

After gaining for two consecutive weeks, the S&P 500 closed lower reflecting concerns over an uptick in interest rates and profit taking in the technology sector.

February 22, 2021    |    By Mike Schwager

Performance for Week Ending 2/19/2021:

The Dow Jones Industrial Average (Dow) finished up 0.11%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) lost 0.84%, the Standard & Poor’s 500 Index (S&P 500) dipped 0.71% and the Nasdaq Composite Index (NASDAQ) closed down 1.57%. Sector breadth was mixed with 4 of the S&P sector groups closing higher and 7 closing lower. The Energy sector (+3.06%) posted the biggest gain while Healthcare (-2.45%) was the biggest loser.

Index* Closing Price 2/19/2021 Percentage Change for Week Ending 2/19/2021 Year-to-Date Percentage Change Through 2/19/2021
Dow 31494.32 +0.11% +2.90%
Wilshire 5000 41747.25 -0.84% +5.81%
S&P 500 3906.71 -0.71% +4.01%
NASDAQ 13.874.46 -1.57% +7.65%

*See below for Index Definitions

MARKET OBSERVATIONS: 2/15/21 – 2/19/21

After gaining for two consecutive weeks, the S&P 500 closed lower reflecting concerns over an uptick in interest rates and profit taking in the technology sector. The yield on the 10-year Treasury rose to the highest level in nearly a year, as investors sold bonds (note: price and yields move in opposite directions) as solid economic data and the likelihood of more fiscal stimulus is beginning to raise worries over inflation. These concerns are also, at least partially, being prompted by strong gains in commodity prices after oil traded to the highest level in a year high and copper prices rose to the highest level in nearly a decade. While investors seem to be nervous over rising prices, the Fed said not so fast, as pricing pressure will likely prove fleeting. According to the January FOMC meeting minutes, “many participants stressed the importance of distinguishing between such one-time changes in relative prices and changes in the underlying trend for inflation” adding that such moves “could temporarily raise measured inflation but would be unlikely to have a lasting effect.

Are Growth Expectations Too Low? In the US, consumer spending accounts for roughly two-thirds of economic growth. Based on the January retail sales report, consumers are in a buying mood. According to the Commerce Department, retail sales jumped 5.3% during January, the most since last June, and far above the consensus estimate of a 1.0% gain. All major retail categories posted strong gains, with several categories advanced by double digits, including furniture and home furnishings, electronics and appliance stores, department stores, and non-store retailers. The report underscored pent-up demand and how reopenings and the $600 stimulus checks have translated into stronger spending. The also suggests that expectations for first quarter GDP growth may be too low. Shortly after the release of the report, the Atlanta Fed GDPNow forecast model for Q1 growth was revised to +9.47% from +4.52 during the prior week. For reference, the Bloomberg consensus (66 economists) for Q1 GDP growth currently stands at just 3.0% (median is 3.4%).

Q4 Earnings Wrapping Up -- Results Have Been Much Better than Feared: Fourth quarter earnings season continued to wind down. Through Friday, 419 members of the S&P 500 have reported results with over 79% surprising to the upside. Aggregate earnings are currently up 6.2%, well ahead of the 9% decline that analysts were forecasting in early January. The better than feared results have forced analysts to upwardly revise their quarterly expectations, with current estimates calling for a 5.2% gain in earnings when all is said and done. Sector wise, the biggest upside in aggregate earnings growth has come from Materials, Consumer Discretionary, and Financials.

Market View: As we look out over the course of 2021, we believe the bullish narrative remains intact. Through our lens, the economic recovery appears durable, earnings expectations continue to trend higher, and the Federal Reserve is committed to maintain its very accommodative monetary policy for the foreseeable future. In addition, the Covid vaccine is being rolled out, which in turn, will allow the economy to open back up and get people back to work. However, with the S&P 500 trading at record levels and valuations a bit stretched, a near-term period of consolidation cannot be ruled out. If a pullback were to occur, we would view it as corrective in nature and not the start of a broader leg lower. Hence, a pullback would be viewed as a buying opportunity as we continue to believe the return profile over the next 12 to 24 months favors additional upside.

The Week Ahead: As we head into the last week of February, the focal points will be on US stimulus efforts, with the potential for a floor vote in the House of Representatives by the end of the week and Fed Chair Powell’s semi-annual monetary policy report to Congress, where he’ll be speaking before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday. Earnings season will continue to wind down with 63 members of the S&P 500 scheduled to release results. The data calendar is relatively light, though the highlights include; the January Leading Economic Indicators, the Conference Board’s Consumer Confidence Index for February, January New Home Sales, January Durable Goods Orders, Initial Jobless Claims, and January Personal Income/Spending. Beside Fed Chair Powell’s two-day testimony, the Fed speaking calendar will be busy with eight other speeches scheduled.


The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

This material contains opinions of the author, but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC.

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