Price Discovery Sets In

The major market indices finished the week lower reflecting rising Covid cases, signs of weakness in the economy, and uncertainty over the passage of the next phase of fiscal stimulus.

January 18, 2021    |    By Mike Schwager

Performance for Week Ending 1/15/2021:

The Dow Jones Industrial Average (Dow) finished off 0.91%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) lost 1.00%, the Standard & Poor’s 500 Index (S&P 500) dipped 1.48% and the Nasdaq Composite Index (NASDAQ) shed 1.54%. Sector breadth was negative with 7 of the 11 S&P sector groups closing lower. The Communication Services sector (-3.56%) posted the biggest loss while the Energy sector (+3.13%) was the biggest gainer.

Index* Closing Price 1/15/2021 Percentage Change for Week Ending 1/15/2021 Year-to-Date Percentage Change Through 1/15/2021
Dow 30814.26 -0.91% +0.68%
Wilshire 5000 39981.94 -1.00% +1.33%
S&P 500 3768.25 -1.48% +0.32%
NASDAQ 12998.50 -1.54% +0.86%

*See below for Index Definitions

MARKET OBSERVATIONS: 1/11/21 – 1/15/21

The major market indices finished the week lower reflecting rising Covid cases, signs of weakness in the economy, and uncertainty over the passage of the next phase of fiscal stimulus. The recent market volatility and the see-saw action between weekly gains and losses since mid-December, suggests the markets have moved into a period of price discovery. Investors appear to be trying to gauge what has already been discounted into stock prices and what is likely to come to fruition in the months and quarters ahead.

Covid Relief Package: Last week, President-elect Biden proposed a $1.9 billion stimulus package. The proposal, called the “American Rescue Plan,” includes $1,400 relief checks for most Americans and provides $400 billion for expanded testing and vaccine distribution to help fight the spread of COVID-19. The plan also includes $400 per week in boosted unemployment benefits through September and $350 billion in aid for state and local governments. It also calls for raising the federal minimum wage to $15 an hour. The market retreated following the announcement on concern that the size of the aid package, as well as the potential for tax increases, may not win support in Congress. Biden has stated that he wants bipartisan support of the package, meaning 10 GOP votes in the Senate are needed to beat a filibuster. While near term uncertainty about passage remains elevated, the current proposal is most likely an “opening bid” and the final version will be worked out by Congress and will likely be followed by a “phase 2” package later this year. The latter could lay out plans for tax hikes and longer-term infrastructure investment.

Economic Headwinds: Additional stimulus to bridge the gap until a wider rollout of the Covid vaccine can’t come soon enough judging by recent economic data. Last week, the Labor Department reported that initial jobless claims in the week ended January 9 surged by 181K to 965K, the highest level since last August, and well above the consensus forecast of 800K. It was the biggest jump in claims since March, as layoffs have accelerated with the relentless rise in COVID cases and more partial shutdowns across the country. Meanwhile, the Commerce Department reported that Retail Sales during December fell 0.7%, the third straight monthly decline. As with jobless claims, the weakness in retail sales appears to reflect increased lockdowns and restrictions in an effort to curb the spread of Covid-19. While recent trends in economic data have been disappointing (but not surprising) and could continue over the next couple months, the likelihood of more stimulus coupled with the vaccine rollout, should lead to better growth prospects by early Spring.

Market View: As we look out over the course of 2021, we believe the bullish narrative remains intact. Through our lens, despite some near-term headwinds, the economic recovery appears durable, earnings expectations continue to trend higher, and the Federal Reserve is expected 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, 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 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 remains asymmetrical, favoring the upside.

The Week Ahead: The inauguration and the transition of power to the Biden administration will be the focal point of the holiday shortened week. Earnings season will also begin to ramp up with 47 members of the S&P 500 scheduled to release results. Expectations heading into reporting season are low, with year-over-year earnings growth for the S&P 500 expected to decline by over 6%. It will also be a busy week on the data front with the main highlight being the release of the flash PMIs on Friday, which will be one of the first reports on how the global economy has fared during January. Other reports of interest include; December Housing Starts and Building Permits, the Philly Fed Index for January, Initial Jobless Claims, December Housing Starts, and Existing Home Sales. The Fed speaking calendar will be nonexistent as members of the central bank observe the 10-day quiet period ahead of the January 26 & 27 FOMC meeting.


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.

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