US equities will enter a peak week of gains in a subdued fashion.
Apple AAPL,
Tesla TSLA,
Facebook FB,
and Microsoft MSFT,
are all ready to report revenues in an action-packed week that also includes the first policy meeting of the Federal Reserve’s Biden administration. In fact, nearly a quarter of the S&P 500 will report results – with those companies representing 39% of the index by market value, according to FactSet data.
The COVID-19 pandemic and vaccine rollout in the US remain in the spotlight as President Joe Biden takes up the job. Investors will also be watching closely the fourth-quarter US GDP reading on Thursday, with economists polled by MarketWatch expecting a 4% rise. In 2021, attention will also be paid to the recovery.
In our call of the day, Goldman Sachs GS,
analysts were optimistic about the US economic recovery in 2021, but said there were three major risks to the recovery. The investment bank forecasts growth in gross domestic product of 6.6% this year, which is 2.5 percentage points above consensus. It expected a reduction in virus risk caused by mass vaccination, along with fiscal support for consumer spending to fuel a “mid-year consumption wave” and “very strong growth” in 2021.
The biggest downside risk, the analysts said, was the threat of a new vaccine-resistant strain of the coronavirus causing COVID-19 – requiring a new vaccine and another round of vaccinations. “Virus-sensitive spending would likely decline while a new vaccine is developed, and while a new vaccine could be approved in less than five months, the consumption boom would likely be delayed until 2022,” said Goldman analysts, led by Jan Hatzius , in a note. They added that preliminary evidence suggested that the current vaccines, while protecting against the new British strain, were more mixed for the South African variety.
The second most concerning risk is that virus mutations “significantly raise the bar for herd immunity”, either by being more contagious or by reducing the effectiveness of vaccines. This scenario would also slow down the consumption wave. Finally, even if the rollout of vaccinations and warm weather reduce the spread of the virus, there is a risk that consumers will be more cautious than expected, although the downside would be limited, they said.
More encouragingly, there were some significant upside risks to Goldman’s forecast of 6.6% GDP growth, including households rapidly spending the savings they had accumulated during the COVID-19 pandemic and the impact of further fiscal stimulus in 2021.
The tweet
This Morgan Stanley MS,
chart shows the NFIB Small Business Optimism Index deviating from the Russell 2000 RUT,
index, suggesting that while sentiment may turn negative, small-cap stocks are rising.
The markets
US Equity Futures YM00,
ES00,
NQ00,
be slightly higher for the open, at the start of a busy income week. European stocks also surged during early trading, helped by earnings and reports of acquisitions by online retailers Boohoo BOO,
and ASOS ASC,
Asian stocks rallied overnight in hopes that some economies will begin to recover from the COVID-19 pandemic, with lockdowns easing and vaccine rollouts progressing.
The buzz
Biden’s top assistants kicked off Sunday with a group of moderate Republicans and Senate Democrats over a $ 1.9 trillion coronavirus aid package.
Biden will, according to reports, restore travel restrictions for the coronavirus against foreign citizens coming to the US on Monday from Brazil, the UK, Ireland and much of Europe, as well as adding South Africa to the list.
The White House on Monday revealed details of the new Buy American executive order to be signed by the president. It will raise the threshold and price preferences for domestic goods before the government can buy from a non-US supplier.
Last year, China overtook the US as the world’s top destination for new foreign direct investment, according to UN figures released Sunday.
Just days before fourth-quarter earnings, Baird raised its price target for electric vehicle manufacturer Tesla TSLA
to $ 728 a share from $ 488, saying “the stock bias remains upward,” in a note on Monday.
GameStop GME,
stocks were up 42% in premarket trading, after rising 51% higher Friday. The profit came after short selling company Citron Research and speculative buyers organizing on Reddit clashed over the video game store.
AMC AMC,
Shares are up 34% in premarket trading as the movie theater chain raised $ 917 million in equity to help it get through the COVID-19 crisis.
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