Seasonal:
Mixed. It is the middle of the “Best Months,” but February can be a weak link. In post-election years, February ranks last for S&P 500, NASDAQ and Russell 2000 and #10 for DJIA. Steep losses in February 2001 and 2009 pull average performance deeply negative.
Fundamental:
Mixed. Vaccine rollout continues to appear to be lacking, speed, quantity and organization further extending the pandemic. New Covid-19 variants are spreading and only further muddy the already rather murky data that is available. Economic growth is improving, but likely has a cap as long as sizable portions of the economy remain restricted or shutdown. Corporate earnings from stay-at-home economy companies have been solid while other sectors, namely leisure and hospitality, languish.
Technical:
Consolidating. DJIA, S&P 500 NASDAQ and Russell 2000 all broke out to new all-time closing this month, but in many areas of the market valuations have been stretched. DJIA, S&P 500 and NASDAQ are all comfortably above their respective 200-day moving averages. DJIA and S&P 500 have both flirted with their 50-day moving average yesterday while S&P 500 and NASDAQ has not. If support at the 50-day moving average fails, the next area of support is around the highs reached last September.
Monetary:
0 – 0.25%. During the first Fed meeting of the year this week, the Fed once again confirmed its commitment to doing whatever it takes to support the economy. This commitment is linked to employment and inflation and the most recent announcement suggests near-zero rates and QE will be around for the foreseeable future and likely beyond. Should weakness appear in February, it is likely to be brief and any retreat shallow. “Don’t fight the Fed.”
Psychological:
Euphoric. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stand at 57.8%. Correction advisors stand at 25.5% while Bearish advisors are at 16.7%. Bullish advisors are slightly lower than their recent peak at the end of November, but the CBOE Put/Call ratio below 0.40 in the third and fourth weeks of January, the lowest we have seen going back to at least 2001.
FEB
2021