The Week on Wall Street
Anticipation of a new fiscal stimulus and improved vaccine distribution powered stocks to fresh record highs last week with technology stocks leading the way.The Dow Jones Industrial Average gained 0.59%, while the Standard & Poor’s 500 picked up 1.94%. The Nasdaq Composite index led, gaining 4.19% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, rose by 1.15%.1,2,3
Stocks Scale New Heights
In a holiday-shortened week, stocks rallied as investors welcomed testimony from incoming Treasury Secretary Janet Yellen to the Senate Finance Committee that suggested lawmakers needed to “act big” on fiscal stimulus, raising hopes for a new round of federal spending.An orderly presidential transition and the anticipation of a more effective vaccine distribution plan contributed to stocks touching multiple new highs last week. Investor enthusiasm was further supported by a strong start to the fourth-quarter earnings season.Mega-cap technology companies resumed their market leadership ahead of a full calendar of big tech earnings reports this week. Market momentum stalled a bit into the close on concerns that any stimulus spending bill might come in lower than expected.
Earnings Beating Expectations
One of the concerns of market watchers has been the valuations of stocks. Stocks are currently trading at about 23 times 2021 earnings, above the historical range of 15 to 17 times forward earnings.4
Today’s valuations may be explained by expectations of a strong economic rebound and a concomitant rise in corporate profits. So far, this earnings season appears to vindicate the optimism; With 41 of S&P 500 companies reporting through last Thursday, 91% of them have exceeded estimates by an average of 18.5%.5
Investors are expected to continue to watch company earnings in the weeks ahead to see whether these consensus-beating results continue.
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