Can Biden surf the Waves?
During the past week, the new US President Biden has been installed and previous speculations about support programs have been confirmed. The S&P500-index rose by 1.9 percent during the last week, with a rise from Tuesday 19 January to Thursday 21 January, followed by a rebound-on Friday.
During the past week, the new US President Biden has been installed and previous speculations about support programs have been confirmed. The S&P 500-index rose by 1.9 percent during the last week, with a rise from Tuesday 19 January to Thursday 21 January, followed by a rebound-on Friday.
Biden´s first 100 days as president of the United States have just begun. It is during these 100 days that the most important proposals in the President’s program are expected to be implemented. As for the majority ratio in the US Congress, the Democrats lost 13 of 435 seats in the House of Representatives and now only have 222 seats. This gives a majority of just under 5 delegates. In the US senate it is equal to 50-50 between the Democrats and the Republicans, with a decisive vote for Vice President Harris. But major changes require 60 percent of the vote, where some Republicans need to support Democrats’ proposals.
During February-March 2021, a first state and local government aid program is expected to be voted through. The next program will be on the agenda already in April 2021. Further away in time (Q4 2021-Q1 2022) are infrastructure investments, tax increases that come into effect during 2022 as well as investments in health care, education, and green financing for environmental investments. In the Los Angeles Times, journalist Even Halper speculates that Biden has much of the Democrat´s policies in California as his role model. Vice President Kamala Harris and House Speaker Nancy Pelosi, as well as several people in Biden’s new governments come from California and represent this new policy. This applies to policies for energy, the labor market, education, and social security systems. “Surfin’USA” with the Beach Boys appears as an association.
Source. MUFG Bank, Carlsquare.
Although the United States with Biden will be more involved at the international level than under Trump, the focus for Biden will also be on accelerating the US economy including managing the effects of Corona (reducing the spread of infection and vaccinating the population). The policy towards China is expected to shift focus towards increasing the productivity of US companies through investments.
When looking at the Purchasing Manages’ Index (PMI) for the industry, the Corona crisis only seems to have had a short-term effect in March-May in Europe, with minor setbacks in November 2020 and January 2021.
It looks even more like back to normal since a long time if we instead study China´s series of figures for Caixin PMI.
Despite actual shutdowns, the picture is even more optimistic for the United States.
But as we pointed out in the last weekly letter, employment statistics (Non-Farm Payrolls below) in the US are probably a better and complementary economic indicator. The total number of employees in the US is almost 10 million fewer compared to February 2020 (when to Corona crisis started), which corresponds to a decline of 6.5 percent.
The US 10-year interest rate has risen but is still far below the old levels. As recently as a year ago, it was around 1.7 percent. Important from a stock market valuation point of view is that the earnings yield is still about 2 percent higher than the ten-year interest rate in the US. It provides an arbitrage that makes shares remain attractive as investment alternatives.
Below we can see in a 6-month-chart how the S&P500 Information Technology index (purple) has subtracted from the S&P500 general index (orange) again.
The corresponding graph shows the last week (18-22 January 2021) where the S&P500 Information Technology Index developed more than twice as well as the general index with an increase of 4.25 percent. It was mainly on Wednesday 20 January that Google, Apple, Microsoft, and Facebook shares rose significantly. One explanation is that hedge funds made their biggest net purchase ever in US tech stocks on Tuesday 19 January, ahead of Apple and Amazons Q4 earnings releases. This according to stock data from Goldman Sachs.
The Q4 2020 reporting season in the US Following the last week, the number of companies that have reported their Q4 2020 figures has increased to 66 or 13 percent of the S&P500 index population. 88 percent of the companies’ results and 82 percent of the revenues are still better than expected. Four sectors have managed to deliver 100 percent positive earnings surprises so far. These are Consumer Goods (both cyclical and non-cyclical) as well as Health Care and Basic Materials. However, the latter sector has only one company that have reported so far.
Swedish Sandvik achieved an operating profit in Q4 2020 that was 13 percent better than the analysts’ forecasts. The company is talking about a strong recovery that took place throughout Q4 2020 in both the mining and engineering sectors. Order intake was down by 2 percent in SEK during Q4 2020 compared with 12 percent for FY 2020. The Group is also back on a good operating margin of 15.6 percent in Q4 2020. Sandvik´s result in Q4 2019 was very weak, which makes the Q4 2020 look even better. The company expects SEK 750 million lower result in Q1 2021 (which corresponds to a profit decline of 15-20 percent) due to a stronger SEK.
Geographically and calculated on the order intake in Q4 2020, growth regions such as Africa and South America did best with +26 and +24 percent, respectively, followed by Asia and Australia with +4 percent. At the same time, Sandvik´s order intake fell by 2 percent in Europe and 23 percent in North America. Looking at customer groups, the arrows continue to point upwards for the mining industry, while it is unchanged for passenger cars and downwards for the engineering industry, energy, construction, and aviation. One insight is that a part of what is manufactured has a customer in sectors that are negatively affected by the Corona crisis (such a travel, hotels, conferences, retail, and restaurants).
The Sandvik share seems to have reached a plateau and is set to find a way forward. However, the share is above EMA9 as well as MA20.
The OMXS30 index is in a strong short upwards sloping trend as the index is trading above EMA9 as well as MA20. MACD is upwards sloping.
The DAX index is under pressure as momentum is positive but fading. This can be seen by a MACD histogram. MA20 was tested on Friday but the index bounced to close above. However, in case of a break to the downside – Fibonacci 23,6 and MA50 around 13 490 serves as a first level of support on the downside.
The S&P 500 index is still trading within its narrow short rising trend. If this trend channel is intact there may be is no reason to get out from a technical point of view.
Nasdaq is trading on top of the ceiling of the narrow rising trend. If the floor of the rising trend hold, there may be no reason to get out.
The Facebook share closed Friday’s trading above MA100 and MA50. The next level on the upside to be broken is 277 USD. Note that MACD has generated a weak buy signal.
The Netflix stock gapped up on Wednesday. However, trading has been down the two following days. This increases the probability for the gap to be closed.
The EUR/USD got stuck under a resistance in form of MA20 and Fibonacci 23,6. A break above and the previous top can be tested. On the downside, MA50 serves as a support.
The Gold price is supported by MA200 and Fibonacci 38.2. Given that the market is expected the economy to improve the risk may seem to be on the downside. Fibonacci 50 is the next level. On the other hand, a continued weakness of the USD may support the gold price. A break above MA100, and the next level to be reached is Fibonacci 23.6.
This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.
The products are not capital protected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.