Market Insights

Stocks broke out to new highs last week, but something changed. For the first time in months, Tesla didn’t lead the charge.

Traditional Nasdaq companies like Netflix (NFLX), Alphabet (GOOGL) and Apple (AAPL) outperformed the electric-car maker by a wide margin. The shift comes as investors focus on quarterly results from the titans that led in recent years but have lagged since the summer. Earnings season is also off to a strong start, with more than 80 percent of companies beating estimates so far.

That helped lift the S&P 500 by 1.9 percent in the holiday-shortened week between Friday, January 15, and Friday, January 22. The Nasdaq-100 performed even better, surging 4.2 percent — its biggest weekly gain since the beginning of November.

Several positive forces appear to be at work. Earnings season is potentially bullish because the availability of coronavirus vaccines increases confidence. Disruptive technologies like autonomous vehicles and 5G networking are coming to fruition after years of expectation. The housing market is roaring back to life, just as the coronavirus case count trends lower.

That leaves investors in a place where conditions may still improve, despite the market’s recent gains. This week, for instance, is likely to bring more stock-friendly policies from the Federal Reserve — plus earnings from AAPL, Facebook (FB), TSLA and Microsoft (MSFT).

S&P Back Above 3,800

In another sign of things returning to normal, two headlines last week suggested Americans are done stockpiling. Consumer-goods giant Procter & Gamble (PG) warned of slowing consumption. Morgan Stanley also downgraded grocery chains Kroger (KR) and Albertsons (ACI), predicting slower traffic in coming quarters.

Communications was the best-performing sector last week, thanks to rallies in NFLX, GOOGL and FB. Technology and solar energy also jumped, along with Chinese stocks and housing. Many of the “value” sectors that led since early November, like energy and financials, lagged.

Last week’s bounce was noteworthy because it planted the S&P 500 back above the 3,800 level that it first achieved in early January. The index’s steadily climb has pushed the Cboe Volatility Index ($VIX) toward the bottom of its range since the pandemic began. Some chart watchers may consider a drop under the 20-21 range a further sign of confidence returning.

Fed Meeting This Week

This week’s busy calendar could help shape that sentiment. The biggest economic event is the Federal Reserve meeting on Wednesday afternoon. Chairman Jerome Powell is widely expected to say short-term interest rates will remain low for the foreseeable future. He could also float the newer idea of holding down longer-term rates. Either way, precious metals could be active into the announcement.

Consumer confidence is due tomorrow morning. The government’s initial estimate of fourth-quarter gross domestic product follows on Thursday. While normally important, these may be backward-looking given the new administration and improving health situation.

Earnings are the other big story because more than one-fifth of the S&P 500 will issue quarterly results.

Today is quiet. The main companies tomorrow are General Electric (GE), MSFT, Advanced Micro Devices (AMD) and Starbucks (SBUX).

Wednesday features AAPL, FB, TSLA and Boeing (BA).

Thursday’s prominent reports include Mastercard (MA), Visa (V), McDonald’s (MCD) and Skyworks Solutions (SWKS).

The big names Friday are Caterpillar (CAT), Eli Lilly (LLY) and Honeywell (HON).