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Markets Mixed as Investors Weigh Data, Vaccine News

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U.S. equities finished the first trading day of the week mixed amid pressure from the Financials and Energy sectors, while a modest reversal to the upside in Information Technology issues kept losses in check. Caution may have set in ahead of one of the busiest weeks for earnings season and as the Federal Reserve is set to deliver its first monetary policy decision of 2021. The markets got some favorable news regarding the fight against the rise in COVID-19 cases and variants, after Moderna announced that its vaccine appears to hold efficacy against the variants first found in the U.K. and South Africa. In other equity news, Kimberly-Clark posted positive Q4 and guidance, and AMC Entertainment said imminent bankruptcy risks are off the table after recent capital raising efforts. In light economic news, Dallas manufacturing output unexpectedly slowed but remained in expansion territory. Treasuries gained ground to apply downside pressure to yields and the U.S. dollar ticked higher, while gold finished little changed in choppy trading and crude oil prices notched higher. Europe finished lower, hamstrung by weakness in Financials and Energy, while markets in Asia were also lower.

The Dow Jones Industrial Average lost 37 points (0.1%) to 30,960, the S&P 500 Index was up 14 points (0.4%) at 3,855, and the Nasdaq Composite rose 93 points (0.7%) to 13,636. In heavy volume, 1.2 billion shares were traded on the NYSE and 7.0 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.50 to $52.77 per barrel. Elsewhere, the Bloomberg gold spot price inched $0.15 lower to $1,855.46 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—ticked 0.2% higher to 90.37.

The markets were mixed to begin the week, with Financials and Industrials sectors seeing pressure, while an upside reversal in Information Technology issues helped to mitigate the losses. The week will be one of the busiest for Q4 earnings season, with companies from the high-flying Information Technology sector taking center stage. Although results thus far have mostly topped expectations, the Street has appeared to take on the "sell the news" mentality, while severely punishing the few that missed forecasts, as the equity markets came into the season running extremely hot. Per data compiled by Bloomberg, of the 68 S&P 500 companies that have reported, roughly 75% have bested revenues estimates and about 87% have topped earnings forecasts. Revenue and earnings growth rates are running positive compared to last year but at muted paces south of 1.0%, though it is still early.

For a look at our latest views on all the major market sectors, including analysis of our outperform ratings on the Financials and Health Care sectors, and our underperform outlooks for the Utilities and Consumer Staples sectors check out our Schwab Sector Views: New Era in Washington.

Kimberly-Clark Corporation (KMB $137) reported Q4 earnings-per-share (EPS) of $1.58, or $1.69 ex-items, versus the $1.62 FactSet estimate, as revenues rose 6.0% year-over-year (y/y) to $4.8 billion, above the Street's forecast of $4.7 billion. The consumer products company said its organic sales—excluding acquisitions, divestitures and foreign exchange—grew 5.0% during the quarter, amid healthy underlying performance and increased demand due to COVID-19. KMB issued 2021 guidance that was above expectations, while announcing a 6.5% increase of its quarterly dividend to $1.14 per share and a new $5.0 billion share repurchase program. Shares were higher.  

Shares of AMC Entertainment Holdings Inc. (AMC $4) jumped over 25% after the cinema chain said due to capital raises recently, which have totaled $917 million, and based on a variety of assumptions, including future attendance levels, it estimates that its financial runway has been extended deep into 2021. AMC's Chief Executive Officer, Adam Aron, added that "any talk of an imminent bankruptcy for AMC is completely off the table," but did note that for AMC to succeed over the medium term it will need much of the general public in the U.S. and abroad to be vaccinated.

Shares of Moderna Inc. (MRNA $147) rallied after it announced that results from studies of individuals vaccinated with its COVID-19 vaccine showed it retained neutralizing activity against emerging variants of the virus first identified in the U.K. and South Africa.  

Meanwhile, uncertainty remained regarding the implications of President Joe Biden's administration, with his $1.9 trillion fiscal relief proposal front and center and receiving some pushback among some Republicans. For our analysis of the new administration and the composition of Congress visit our Market Insights page on www.schwab.com, including our WashingtonWISE podcast, Dems Take Control, but No Carte Blanche for Biden and Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's article, Five Names for Investors to Know in the New Administration. Finally, be sure to follow us on Twitter @SchwabResearch.

Regional manufacturing activity surprisingly slows to commence economic week

Treasuries were higher, as the rate on the 2-year note was little changed at 0.12%, while the yield on the 10-year note declined 5 basis points (bps) to 1.03% and the 30-year bond rate decreased 6 bps to 1.80%.

Bond yields have stabilized after a recent breakout that has taken the yield on the 10-year note to levels not seen since March 2020 and Schwab's Chief Fixed Income Strategist Kathy Jones discusses in her latest article, Why Longer-Term Treasury Yields Are Rising. She notes how in many ways, it appears that the market is disconnected from the current state of the economy and politics. Kathy adds that in our view, the market is looking beyond current conditions and focusing on the future, where prospects suggest stronger growth and potentially higher inflation down the road.

She points out that while the consensus expectation has been for stronger growth in the second half of 2021, the election results appear to have pulled those expectations forward. Kathy also discusses that with the presidency and majority in Congress held by one party, concerns about gridlock have given way to expectations of a faster recovery, more expansive fiscal policy, and higher inflation. She concludes that the recent move up in yields may be a bit too much, too soon, but the overall direction in yields is likely to remain higher.

The January Dallas Fed Manufacturing Index unexpectedly declined but remained in expansion territory (a reading above zero). The index decreased to 7.0 from 9.7 in December and compared to the Bloomberg consensus forecast of a rise to 12.0. New orders and production both expanded at much slower rates month-over-month (m/m), while growth in employment slowed but remained solidly north of zero.

Tomorrow's economic calendar will deliver Consumer Confidence for January, forecasted to nudge higher to a level of 89.0 from December's 88.6, as well as the S&P CoreLogic Case-Shiller Home Price Index, with the 20-city composite expected to have increased 8.7% y/y, and a seasonally-adjusted 1.0% m/m. The January Richmond Fed Manufacturing Index will round out the day, anticipated to remain at December's 19 level, with a reading above zero denoting expansion in activity. 

As noted in our latest Schwab Market Perspective: A Narrow Path Up, U.S. stocks have continued to climb amid optimism about a vaccine-led economic recovery, but it's a narrow path and buoyant investor sentiment could easily be deflated by bad news. Although global economic growth has struggled, an acceleration in vaccinations in major countries could support stronger growth in the second quarter. Meanwhile, after months of languishing near record lows, 10-year Treasury yields have risen to their highest level since March 2020, as the bond market focuses on the potential for stronger growth and higher inflation in 2021.

Europe lower as Energy and Financials weigh, Asia mostly higher

European equities traded to the downside, as the Energy and Financials sectors cooled off a bit, with bond yields in the region lower and crude oil prices pausing. The markets continued to eye the festering spread of COVID-19 and variant cases and the responses of reinstated measures to combat the issue. Caution may also have set in ahead of this week's monetary policy decision from the Central Bank of the world's largest economy of the U.S., while earnings season is set to kick into high gear, headlined by some key U.S. Information Technology companies. The economic calendar in the region showed German business confidence for this month came in below forecasts, with the assessments of current conditions and expectations both slipping m/m. The euro and British pound were lower versus the U.S. dollar. Meanwhile, although we got closure on the U.S. political front, uncertainty is resurfacing on this side of the pond as discussed by Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, in his latest article, An Investors' Guide to the 2021 Elections. Jeff points out how Joe Biden taking the Presidential oath of office last week in the U.S. marks the end of a long U.S. political contest, but a year of political challenges is just getting started overseas.

The U.K. FTSE 100 Index was down 0.8%, Germany's DAX Index and Spain's IBEX 35 Index fell 1.7%, France's CAC-40 Index and Italy's FTSE MIB Index declined 1.6%, and Switzerland's Swiss Market Index ticked 0.1% lower.

Stocks in Asia finished mostly to the upside as the new week kicked off, aided by the backdrop of a plethora of global monetary and fiscal support, and signs of economic recovery. The markets continued to monitor the persistent rise in new COVID-19 cases and variants, while gearing up for a host of global economic data, ramped-up earnings season, and the monetary policy decision out of the U.S. Japan's Nikkei 225 Index gained 0.7%, with the yen softening a bit, while China's Shanghai Composite Index advanced 0.5%. The Hong Kong Hang Seng Index led the way, rallying 2.4%, bolstered by investor optimism regarding the electric vehicle industry and as emerging markets remain buoyed by the recent drop in the U.S. dollar. South Korea's Kospi Index also moved nicely higher, jumping 2.2%, and Australia's S&P/ASX 200 Index traded 0.4% to the upside. However, India's S&P BSE Sensex 30 Index continued a retreat from record highs, dropping 1.1%. 

Schwab's Jeffrey Kleintop discusses the Top Five Global Investment Risks In 2021, noting that they are all surprises to the consensus view: problems with the vaccine rollout, geopolitical and trade tensions do not subside, fiscal and/or monetary policy tightens, a "zombie" economy, and interest rate/dollar shock. He reiterates how having a well-balanced, diversified portfolio and being prepared with a plan in the event of an unexpected outcome are keys to successful investing.

Tomorrow's international economic calendar will be light, offering only employment data from the U.K.

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