Market Overview

The set of major U.S. stock indexes, including the S&P500 and the Dow Jones Industrial Average (DJIA), not only quickly recovered from temporary and very limited losses in response to the release of a weaker-than-expected labour market release on Friday, February 5, but also updated their historical peaks again in early hours of Monday.

The non-farm payrolls (NFP) loss for December was officially revised to 227 thousand from 140 thousand jobs, which may signal a longer stagnation of the economic recovery process plus a possible lack of consumer demand in the nearest months, which may come about due to  high unemployment or low paid staff. Only 49 thousand new jobs were created in January to balance that effect of partial lockdowns. Moreover, 43 thousand of those 49 thousand were government and not private jobs, plus the participation rate of the labour force was 61.4% only, the lowest since October.

However, the stock market doesn't seem to care. An hour after the European noon, the S&P500 was just 100 points away from the landmark round figure of 4,000 points. It means that the Wall Street's broad market is now trading 20 points above last week's close and is already almost 6.5% above the bottom of the correctional decline that finished by February 1. Could this be a happy ending and a brave bid for the bullish market for the whole month ahead? This could seem perfectly feasible. Or, at least for now, it looks like a base scenario, because the art of positively responding to some negative information has always been a feature of the ongoing rally, it's a classic circumstance of the genre.

What makes the markets feel that the glass is not half empty, but half full? First, the employment data is not a game-changer, plus stimulus hopes may be even stronger now on temporarily weak data. The prospects for an easier passage improved after both the House and Senate passed legislation that would allow the Democratic-controlled Congress to adopt the relief bill without Republican support. Nevertheless, the most realistic explanation lies, of course, in still betting strongly on a future recovery, instead of contemplating the foggy present. Is there anything encouraging in this regard? Yes, there really is such news. According to the latest World Health Organisation (WHO) data, 4.5 million anti-COVID shots are given globally every day. That figure is 3.5 times higher than similar readings just a month ago. The WHO representatives have assured that the intensity of the vaccination process would only increase. As of February 4, 119 million people in 67 countries were vaccinated.

A decrease in the number of new cases of corona has also been seen. For example, on February 7, only 122 thousand people fell ill or were infected without symptoms in the United States, which is 2.3 times less than on the same day in January. Less than 6,500 new cases were reported in Germany yesterday, compared with a peak of about 13,000 just a few days ago, and more than 30,000 new cases per day before Christmas. The rate of vaccination in Europe is much lower. By the end of January, no country on the continent had vaccinated more than 5% of its population. But even here the rate is beginning to increase, and the positive concentrated around U.S. assets is projecting its indirect light also on European indices which continue to grow slowly but steadily for the five from the last six trading sessions.

It is quite possible that Vandana Hari, the founder and CEO of a Singapore-based Vanda Insights, who has more than two decades of experience in global markets was right when saying: "Investors are confident that this is the beginning of the end for the pandemic as it can be seen that infection, hospitalization and fatality numbers have steadily been dropping in the past two to three weeks globally".

However, there are also economic signs that better days may come soon. The price of Brent crude oil rose above the $60 per barrel on Monday, it reached the same height for the first time since January 29, 2020. This points not only to a revival in demand, but also raises the profits of commodity companies; this wave may subsequently affect not only the oil sector. Some assets of the banking sector also rose from 2% to 5% for the last two weeks in both the United States, Europe and Asia. These assets, in turn, may become another indicative basis for the rest of the market's hopes.

This may become even more true since earning reports for Q4 2020 outnumbered declining ones on the New York Stock Exchange (NYSE) broad list by a 2.93-to-1 ratio, and on Nasdaq, a 2.91-to-1 ratio, according to Refinitive data during the current corporate reports' season. In forward guidance flows from CEOs of most companies, even if they talk sometimes about a possibility of slowing down the pace, but only for one or two quarters, almost all CEOs are shouting about the expected excellent performance by the end of 2021.

Against the background of all the incoming information, of course, it is not possible to completely rule out chances for downside corrective movements, such as, those observed in September and October, when the S&P500 index fell by 375 points altogether at the lowest point from its reached height of almost 3600 points. However, the probability of such a downward correction this February seems increasingly low, given the current mood of the market crowd, which saw the golden opportunity to set new targets on many corporate assets.

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.